If you had to go through a long list of stocks to find the ones with the best future potential, what would you look for?
Without getting too technical or overladen with statistics and financial figures, we should look at the traits of growing, profitable businesses.
Because of my personal interest in retailing and products, I focus on brand names. They are in our head already and may be the first name we think of when we want something. It may be a premium service business, but could be just the result of long, successful marketing and personal familiarity.
For entertainment and leisure, going to popular places like Dreamworld or the Wet'n'Wild water theme parks owned by Village Roadshow Ltd (ASX: VRL) might be a good reason to hop online to check the stock out. Its share price has gone from about $4.50 to $6.80 in the past 12 months.
Perhaps you want to change your mobile and broadband service and you notice on TV that Telstra Corporation Ltd (ASX: TLS) is expanding its services. Maybe its share price is expanding recently as well. You would have found out that it is up about 50% in the past two years. The telecom company will keep on growing as it expands overseas as well as benefits from the NBN rollout here at home.
Next, you can look for companies that provide products or services that consumers buy repeatedly. You can look around your home to find these products or think back to the businesses and stores you visited over the last month.
You could be picking up some motor oil or windscreen wipers from Supercheap Auto, owned by Super Retail Group Ltd (ASX: SUL), or getting some garden supplies at Masters, the DIY hardware store operated by Woolworths Limited (ASX: WOW). Both are stable earnings growers.
If you bank with Westpac Banking Corp (ASX: WBC) and you have your home loans with it, many other people will be just like you. As you paid off your loan, if you had saved a little extra money for buying the bank's stock two years ago, your shares would now be worth around $34, up about 60% from your initial $21 share price.
Foolish takeaway
You may not have to seek out new and unfamiliar companies to make good stock picks. Buying what you know can be a successful guiding strategy for your portfolio but researching and knowing how the company operates is still required knowledge.
