Over the long term, the S&P 500 has produced an annualized return of about 10% per year. For the individual investor who wants to pick single businesses, perhaps the obvious goal is to outperform the broader index over the long haul.
This might seem like a daunting task, as even most active fund managers lose to the market. But I believe average investors can supercharge their returns by focusing on one important characteristic. These stocks are proof that this strategy has merit.
Think like a customer
As individual investors, we might forget that we have valuable first-hand knowledge of some businesses out there. That’s because we are also customers of many companies. It’s by using this perspective and identifying businesses that do a fantastic job at taking care of their customers, by offering superior products or services, that we can find potential stock ideas.
At the end of the day, it’s the customers that generate revenue for companies. There is no argument here. This ultimately leads to profits and cash flows, which can result in happy shareholders.
Look at these five stocks
If you adopt this mental framework, then it’s actually quite easy to find businesses that delight their customers. I’ve chosen five obvious examples.
Costco (NASDAQ: COST) is loved by its shoppers, who can’t get enough of the low prices and treasure hunt experience. The worldwide membership renewal rate of over 90% exemplifies customer loyalty. It’s also worth mentioning that the number of member households has climbed 40% in the past five years. In the past decade, this top retail stock has generated a total return of 807%.
The restaurant industry is extremely competitive, but Chipotle Mexican Grill (NYSE: CMG) has found remarkable success by focusing on real ingredients, having a simple menu, and providing customers with tremendous value. This is especially true following the health scare in 2015, when the business regained the trust of consumers and investors. Shares are up 226% in the past five years, propelled partly by 114% sales growth during that time.
Image source: Amazon.
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