By Scott Rubin
Value investing can be very hard work. Most successful value investors possess extraordinary patience and a good deal of experience. This market is littered with busted stocks that have cost many a value investor dearly. Consider names such as Research in Motion (RIMM), Best Buy (NYSE:BBY), Cisco (NASDAQ:CSCO) and Hewlett-Packard (NYSE:HPQ) to name a few. Cheap stocks often get cheaper.
While growth investing is also frequently difficult, there are some decided advantages for the average investor who follows a simple strategy. First, if you are going to pay for growth, you may as well also pay for quality. In other words, growth investors should only focus on the highest quality names which are experiencing tremendous operating momentum. Doing this reduces a lot of potential risks right off of the bat.
Companies whose stock prices are cheap on a valuation basis aren't likely to be doing all that well. The chances of something going wrong with these types of stocks is better than something going right. Conversely, when you own great growth companies at reasonable prices, the chances of something going right in the future are usually pretty good. After all, they have a track record of things going right, whereas the cheap stocks have a track record of things going wrong.
Here are five stocks that fit the simple growth investing strategy of buying leading, high-quality names that are experiencing great operating momentum in their respective industries. All of these stocks have considerable track records of providing great shareholder returns. Furthermore, each possesses a competitive moat around their business in the form of a premium brand - another important factor to consider if you are paying up to buy quality.
Chipotle (NYSE:CMG) - This stock has been an epic performer since going public in 2006. In that time, CMG shares are up around 646%. The company continues to gain momentum and is expanding internationally. Chipotle commands tremendous customer loyalty and is extremely well-run. The company was once owned by McDonald's (NYSE:MCD) and its growth trajectory is not dissimilar to that of its former parent. The stock is not cheap - CMG trades at 36.5 times forward earnings estimates. Despite the hefty price tag, however, this is not a company to bet against and investors who passed on the name years ago because of valuation are kicking themselves today.
Wynn Resorts (NASDAQ:WYNN) - This is the premium name in the casino/resort space. Since going public in 2002, WYNN shares are up a whopping 1,050%. Growth in the Macau gaming market has been driving the company's bottom line in recent years, and that trend is likely to continue going forward. Wynn has been able to build a very strong moat around its franchise by focusing on the high end gaming and resort market. The name is synonymous with quality, and this is a critical component of the company's success. Look for WYNN to be a leading stock for years to come as the Las Vegas market rebounds and revenue growth in Macau continues to drive profits.
Priceline.com (PCLN) - This company has taken the online travel industry by storm since its 1999 IPO and the returns in recent years have been staggering. In the last 5 years, PCLN shares have risen 1,565%. The company is the premier name in the fast growing online travel market and its momentum has been accelerating since the financial crisis, with shares skyrocketing in the last few years. Valuation still appears to be quite reasonable. PCLN trades at a forward P/E of 17.86, and a PEG ratio of 1. If recent momentum continues in the coming years, this could easily be a $1,000 stock at some point.
Whole Foods (WFM) is an example of a company who is leading the way in a fast growing market with very favorable consumer trends. People want healthy food. People want quality food. People want organic food. In the minds of millions of consumers, Whole Foods is synonymous with these concepts. The company has established a premium brand, and is delivering what discerning, health conscience, consumers want in a grocery store. The prices are high, but you get what you pay for at Whole Foods. The stock is not cheap either, and trades at 30.45 times forward earnings estimates. The long-term performance of the company, however, along with its future growth prospects justifies the premium price tag.
Baidu.com (NASDAQ:BIDU) - This company runs the leading search engine in the People's Republic of China. Essentially, Baidu is the Google of China. The PRC is the largest internet market in the world and is growing at a torrid pace. Baidu dominates this market, and its stock price reflects this highly enviable position. The shares have gained around 1,100% since the company's 2005 IPO. Shares trade at 33.45 times forward earnings and a PEG ratio of 1.07. This is a name that investors should look to pick up during broad market shocks which drag stocks down across the board. For the most part, BIDU is insulated from many of the problems that are enveloping Europe and the U.S., and should continue to make investors very happy over the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.