Renowned asset manager Peter Lynch popularized the phrase “buy what you know” to express that the best investment ideas often come from observations in our day to day life; no complex analysis or sophisticated knowledge is necessary to identify the companies with the best long term potential. This is a simple yet wise approach to the markets, and one that investors should keep in mind when it comes to looking for winning investments.
Ford Motor Company (NYSE:F) makes a U-turn
Everybody is familiar with iconic automaker Ford Motor Company (NYSE:F), and most consumers can appreciate the turnaround the company has accomplished over the last few years. The ways things are going, it looks like Ford still has plenty of potential for investors as long as the company continues driving in the right direction.
Ford Motor Company (NYSE:F) makes a big chunk of its profits from its famous F-Series, and truck sales have been booming lately. Ford reported an amazing increase of 31% in pickup sales for the month of May, and the segment still has plenty of room for growth considering that the recovery in construction is fueling sales and the average age of pickups on the road is around 11 years old, which means that many customers will likely update their old models over the next years.
Not only that, but the company has been quite successful in introducing new models like the widely acclaimed Ford Fusion, which has received many awards and is improving consumer´s perception of the quality embedded in Ford Motor Company (NYSE:F) vehicles. The Escapade is another big winner for the company; both the Fusion and the Escapade have set record monthly sales over the last four consecutive months, so consumers are definitively embracing Ford´s turnaround.
The company has made great progress on the financial front too, Ford Motor Company (NYSE:F) has remarkably improved its operations and increased its profitability levels: the company has reduced its debt and now pays a 2.5% dividend yield, which is quite attractive for a company in the auto business.
Ford Motor Company (NYSE:F) is on the right track, and as long as customers continue purchasing its vehicles, there are good reasons for investors to consider buying the stock.
A healthy investment
You don´t need a degree in rocket science to tell that people all over the world are increasingly paying more attention to the health implications of what they eat, and it´s quite easy to tell that Whole Foods Market, Inc. (NASDAQ:WFM) is one of the biggest beneficiaries from that trend.
The company is the largest pure player in the organic and natural food business, so Whole Foods Market, Inc. (NASDAQ:WFM) offers unique exposure to an exciting secular trend. These kinds of products are usually more expensive, but they taste better and are better for your health too, so it´s no wonder at all that consumers are willing to pay a few extra bucks in order to buy tasty and nutritious food.
Whole Foods Market, Inc. (NASDAQ:WFM) has a smart incentive program aligning employees with shareholders by allowing them to participate in productivity increases. When costs in relationship to revenues go down, employees receive a percentage of those savings, so it´s in their best interest to make sure that things are running smoothly. Thanks to this and other smart initiatives, the company has net margins in the area of 4%, more than double the profitability of other companies in the industry.
Whole Foods Market, Inc. (NASDAQ:WFM) still has plenty of room for expansion: management estimates its addressable market is around 1,000 stores from the nearly 330 it currently has in the U.S. and Canada, and international markets are practically untapped, so the company will most likely continue delivering growing profits to shareholders for years to come.
The stock is priced for growth with a P/E ratio around 36, but growth is something this healthy company has consistently proven it can deliver.
Google Inc (NASDAQ:GOOG) is everywhere
Google Inc (NASDAQ:GOOG) is much more than the dominant search engine in the world–the company owns many tremendously popular products and services like Gmail, Chrome, Maps and YouTube, among others, and it has also become a major force in mobile thanks to its widely successful Android operating system.
Almost everybody uses Google Inc (NASDAQ:GOOG) in one form or another, and the company monetizes its popularity via a profitable and scalable business model based on advertising. Google Inc (NASDAQ:GOOG) has operating margins in the area of 25%, and sales have increased at an average growth rate of 28.5% annually in the last three years, which is nothing short of remarkable for a company of this size.
Recent concerns regarding privacy issues are only a sample of the kinds of challenges a company can face when it operates in a high growth area where new and unexpected difficulties can always arise. But no regulatory or legal hurdles are going to derail Google from its long term growth trajectory.
Besides, Google Inc (NASDAQ:GOOG) is one of the most innovative companies in the world, developing futuristic technologies with enormous long term potential like its augmented reality glasses or its self-driving car. The Google Inc (NASDAQ:GOOG) growth story is far from over, so investors still have time to ride this widely popular giant for more long term gains.
It´s not necessary to be a sophisticated expert to find investments with superior long term potential, our experiences as consumers, and observing the world around us, can lead to some really smart investment ideas. If someone as successful as Peter Lynch says so, investors better listen.
The article A Simple and Powerful Investment Strategy originally appeared on Fool.com and is written by Andrés Cardenal.
Andrés Cardenal owns shares of Google. The Motley Fool recommends Ford, Google, and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Ford, Google, and Whole Foods Market. Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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