How 3 "Red Dot" Stocks Have Still Succeeded

One absolute focus of mine is distilling stock investing down to the simplest, most effective factors.

Over 25 years of investing, you try it all. Benjamin Graham-style "cigar butt" investing. Peter Lynch style "buy what you know" investing. Quantitative mechanical investing strategies, like "Dogs of the Dow", "Magic Formula Investing", or Ken Fisher's Super Stocks approach. You dabble in technical analysis (which always felt like alchemy to me), and option trading strategies. Always looking for the best approach.

Overall that time and different approaches, BY FAR the most successful one I've seen is the one espoused on this site. It's simple really. Look for stocks with good revenue growth opportunities, a recurring revenue base (products/services are purchased on a regular basis, often automatically), and strong durable economic moat characteristics (a nod to Pat Dorsey here). Finally - and this is a big one - investors need to hold them for at least 3 years, and preferably 5+ years.

5 words: "Buy Well and Don't Sell"!

So far, over 4 years, it has worked well. "Green" rated stocks have outperformed the others by a good margin, and "yellow" have outperformed "red". Both "green" and "yellow" have beat the market by a wide margin, while "red" has trailed the market. It's what you want to see to validate the strategy.

top view mall interior photo

Image Source: Unsplash

Even then, there are some outcomes that make you wonder. Looking back at "red" rated stocks that were initially rated 4 years ago, there were several stocks that ended up performing quite well. I thought it might be interesting to take a look at why they did so well, whether they can continue to outperform, and whether I would still rate them "red" today. There might be some useful info we can glean from these "red dot rockets". Let's take a look!

Autozone (AZO)

Date first rated: 12/21/2017

Total performance: +72.9%

Vs. S&P 500: +21.9%

Autozone is an auto parts chain, the largest in the U.S. with close to 6,000 locations. When reviewed, there wasn't too much attractive about the business. Revenue growth over the long term was very "meh" at about 5% a year, and with a saturated store base, there wasn't much expansion potential. Revenues are driven by transactional, non-recurring purchases of products that can be had at any number of competing outlets. There were no clear competitive advantages. Autozone faces massive competition from O'Reilly, Napa, Advance, and even Walmart.

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Disclaimer: The content is provided by Alexander Online Properties LLC (AOP LLC) for informational purposes only. The material should not be considered as investment advice or used as the basis ...

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