These “Best Stocks” Ignore the Broader Market

“Best Stocks” Ignore the Broader MarketHindsight is always 20/20 in the investment business, and one of my biggest regrets is not investing in MasterCard Incorporated (NYSE/MA), which turned out to be an outstanding wealth creator on the stock market. I always follow and research what I call the “best stocks” in the marketplace because it helps me define the attributes of a successful stock market investment.

MasterCard spent the first few months trading range-bound around $46.00 a share on the stock market when it went public in the spring of 2006; then it moved strongly higher, appreciating to $300.00 a share in just two years. The position pulled back like everything else on the stock market in the last half of 2008 to $150.00 a share and spent the next year recovering. Recently, it hit an all-time record high of $483.00 a share, and Wall Street keeps increasing the company’s earnings outlook. To me, MasterCard is one of the market’s best stocks. The company’s stock chart is below:

Mastercard Chart

Stock chart courtesy of www.StockCharts.com

Visa Inc. (NYSE/V) has also done well on the stock market, though nowhere near as well as MasterCard. Discover Financial Services (NYSE/DFS) tanked badly during the financial crisis, hitting $5.00 a share during the low in March of 2009. Discover is now trading at an all-time high of $40.00 a share for a huge gain of 700% since its low. American Express Company (NYSE/AXP) has basically just mimicked the S&P 500 index over the last 20 years.

As much as the stock market is defined by its major indices, the contrast in performance between American Express and MasterCard is extreme. I’m a big fan of the buy low/sell high investment strategy, but I find that with large-caps, it pays to stick with the best stocks—those with a very consistent track record of creating wealth. I consider MasterCard to be one of the best stocks because of its consistent capital gains over time. Other companies I consider to be the market’s best stocks include Colgate-Palmolive Company (NYSE/CL), Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN), and PepsiCo, Inc. (NYSE/PEP). Alexion’s stock chart is featured below:

Alexion Pharmaceuticals Chart

Stock chart courtesy of www.StockCharts.com

I don’t want to be a buyer in today’s stock market—I want the market to experience a major correction before I buy. And with a major pullback in share prices, I would consider buying the market’s best stocks or adding to existing positions in them, simply because if a stock has been a winner through the last few years, there’s no reason why it can’t keep doing well during economic recovery.

My best guess is that the U.S. economy is going to experience another year or two of tough times before a new business cycle begins. A technical recession is a real possibility with such slow growth in gross domestic product (GDP). I think the next big correction in the stock market will be a really good entry point for investors. I never hope for down markets, but a big correction would be healthy for this market, and it would make the best stocks that much more attractive.

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