5 Examples of What to Look for in the Perfect Stock

Here are five examples, including Shopify Inc. (TSX:SHOP)(NYSE:SHOP), of what separates the winners from the losers in the capital markets.

| More on:

Okay, so maybe there is no such thing as the “perfect” stock, but there are certainly some companies that enjoy distinct and sustainable advantages over their competition.

A winning investment strategy is one that sees you buy great, high-quality companies and hold those companies forever — or at least for a very long time.

Be on the lookout for these five qualities next time you’re making an investment, and with a little bit of luck, you might just find yourself the owner of something truly great — like, for example, the next Amazon.com, Inc. (NASDAQ:AMZN).

Look for a growing industry

Amazon.com would have been the quintessential example of this, 20-some odd years ago.

A more modern example, however, could be found right in your backyard with the likes of Canada’s homegrown e-commerce disruptor, Shopify Inc. (TSX:SHOP)(NYSE:SHOP).

Another example of a seemingly “can’t-miss” growth industry would be the emerging market for marijuana in Canada — for recreational as well as for medicinal purposes — and in several nascent international markets.

Some of the “who’s who” in Canada’s cannabis market include the likes of Canopy Growth Corp. (TSX:WEED)(NYSE:CGC), Aurora Cannabis Inc. (TSX:ACB), Aphria Inc. (TSX:APH), and Cronos Group Inc. (TSX:CRON)(NASDAQ:CRON), among others.

A company offering a superior product

At the risk of repeating myself, Amazon.com jumps to mind here once again.

Countless individuals and companies have invested millions — if not billions — of dollars to develop a winning e-commerce strategy, yet Amazon stands out as the clear winner, at least so far.

Companies offering products and services that are superior to the competition get the luxury of charging a premium for those products and services.

That premium ends up going straight to the bottom line, and that’s what makes these companies so great.

Going with the cost leader

This type of company or stock is going to be a favourite of those following a value investing style.

Companies like Walmart Inc. (NYSE:WMT), Bank of America Corp. (NYSE:BAC), and even Royal Bank of Canada (TSX:RY)(NYSE:RY) enjoy the benefits of scale, allowing them to deliver products to their customers at a cost that their competitors simply aren’t able to match.

Loyalty is everything

Having loyal customers is great, because they’ll be willing to look the other way when something goes wrong — and it always does.

Just look at the patience Tesla Inc. (NASDAQ:TSLA) customers have demonstrated amid the company’s recent struggles, and ask yourself how things would be different if that weren’t the case.

Opportunity to tap into new opportunities and markets

Then there are the truly iconic companies — ones that have stood the test of time; companies that were around when your grandparents were growing up.

General Electric Company (NYSE:GE), despite its recent woes, is one of these legendary companies.

But while there are certainly questions as to whether General Electric will be around another hundred years from now, those with a view to the future may want to pay attention to the investments that some of today’s technology leaders like Alphabet Inc. (NASDAQ:GOOGL)(NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) having been making in initiatives like artificial intelligence.

Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Fool contributor Jason Phillips has no position in any of the stocks mentioned. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, and Tesla. Tom Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Shopify, and Tesla. The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Shopify, SHOPIFY INC, and Tesla. Shopify and Tesla are recommendations of Stock Advisor Canada.

More on Dividend Stocks

data analyze research
Dividend Stocks

TFSA: Invest $29,000 in These 3 Stocks and Earn $515 Each Month in Passive Income in 2023

The benefits of the TFSA can be leveraged to hold a basket of dividend stocks and generate a stream of…

Read more »

woman data analyze
Dividend Stocks

2 Stocks to Buy and Then Never Sell

Conservative investors who seek capital protection and long-term price appreciation should dig deeper into CNR and IFC stocks.

Read more »

Retirement plan
Dividend Stocks

TFSA Investors: 3 Stocks for Building Your Tax-Free Retirement Income Stream

If you start building your retirement income stream now (within your TFSA), you can grow it to massive proportions by…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Dividend Traps: These 8% Dividend Stocks Are Riskier Than They Look

High yield dividend stocks like Slate Retail REIT (TSX:SGR.U) are better-positioned.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

TFSA Investors: If You Like Dividends, You Should Love These 3 Stocks

Are you looking for some great income stocks to add to your TFSA? If you like dividends, you will love…

Read more »

Dividend Stocks

These 2 High-Yielding Dividend Stocks are Near Their 52-Week Lows

These dividend stocks offer yields far higher than we've seen in recent years, giving you practically double the dividend income.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

How to: Defensive Stock Investing for Today’s Market

Don't like butterflies in your stomach? Then pick up some defensive dividend stocks on dips at good valuations.

Read more »

consider the options
Dividend Stocks

Better Buy: Royal Bank Stock or BCE Stock?

Top TSX dividend stocks still look attractive after the recent bounce.

Read more »