By: Peter Leeds
Whether running a business or trading stocks, the goal is to make money. If you understand the similarities between successful investments and successful businesses, you’ll be able to pick stocks that will excel, and run your business better in the process.
We've spent years analyzing what makes a company successful, in order to find winning stocks. We realized there are inherent characteristics that all the best companies share, which led to the development of our proprietary methodology, called "Leeds Analysis" which can help investors identify solid companies with a potential for a large upside. From this analysis we’ve uncovered the top traits to look for in any company you are considering for investment, outlined below:
Good branding by its very nature should go unnoticed, which is probably why so few investors/business owners understand it or use it.
Think of branding as the beliefs people have about a product or service, way down in their subconscious. Every brand touch point, from the person answering the phones, to the card stock used for brochures, adds to (or takes away from) the perception of the product or service. This all ads up to “the user experience,” which dictates if they’ll be a returning customer, and whether or not they’ll spread the word.
If a brand is about wealth (think Donald Trump), then it needs to demonstrate wealth in its offices, materials, press releases, business cards, web site, and more. Most people don’t know why Harley Davidson is considered “the best” motorcycle, but they accept that as fact. It doesn't need to be true, people just need to believe it, and then they act on those beliefs. That is strong branding.
Generally, the stronger the branding, the better that company will perform. We see it with large corporations like IBM, and we see it with undiscovered stocks that are just getting off the ground. If you find a company you like that is trading for pennies a share, and it has effective and solid branding, then you may want to consider it for deeper due diligence.
Point of Differentiation:
In an infinitely crowded marketplace, prospects are getting burnt out on 5000 advertising messages per day (according to the Yankelovich research firm, which ironically has very weak branding).
A business needs to survive by standing out. They need to be unique. One of a kind. In other words, they need to make it loud and clear that their service or product is unlike anything else available, and then clearly spell out the main reasons why.
If you are looking for the next up-and-coming stock, look for those companies that have done a great job of differentiating themselves. Google is different because they are focused on "search" alone, unlike others that provide news, weather, and horoscopes, like AOL, Yahoo!, and MSN.
FedEx differentiates by focusing on certainty ("When it absolutely has to get there on time"), unlike their competitors that lead with price, speed, or service.
Berkshire Hathaway is the only company led by the "Oracle of Omaha," Warren Buffett. No other company can make that claim. Think about Volvo - they focus on safety first, which is different than BMW, Audi, Ford, or Kia. Safety is their primary differentiating factor, and they lead with it.
If you run your own business, make it crystal clear why your product or service is different. If you're investing, look for those companies that do a great job of standing out from the crowd through differentiation.
Does France or Italy make the best wines? This is a hotly contested statement, but in general the world over, most people believe it to be a fact. France and Italy are positioned as the source of the world’s best wines.
Does Belgium make the best chocolate? It doesn’t matter if it’s accurate or not, it only matters if people believe it -- and they do. The result is that consumers are willing to pay more for chocolates from Belgium, and think they are enjoying them more. This creates opportunities for companies selling Belgium chocolates to charge more and have stronger profit margins.
A good way to spot great positioning is in a company’s tag line. A motto is the wrong way to differentiate for example, “we’re there for you,” or “often imitated, never duplicated,” or “the choice is yours!” Incidentally, those motto’s could be for a pick-up truck, dentist’s office, or day care. In other words, very ineffective.
What is much more powerful is a strong positioning statement: “the world’s best chocolate”, “the fastest electric scooter available”, “the mechanic for people who don’t understand cars”.
These are examples of positioning, and if a company is taking advantage of it, they will have a sales advantage. Take a look at Walmart - they are effectively positioned as the retailer with the lowest prices, and the best selection. Where else can you buy a fishing rod, plunger, DVD, couch, and workout pants, all in one place at a low price?
Consider Ford, and their motto, "Built Ford tough." They have enjoyed great success, in terms of sales and share price, with that clear and solid position. You want to know your truck is going to be able to handle the work load you're going to put it through, and Ford did a great job of taking over the position of "toughness" in the minds of truck buyers.
Whether a small business, or a publicly traded stock, companies which develop strong branding, positioning, and differentiation, will have a major operational advantage over their competition. Investors should take these lessons from the business world to heart, because through understanding the aspects that make companies stand out and thrive, they’ll be able to discover those shares which are destined for higher prices.
Investment analyst Peter Leeds is the author of the new book Invest in Penny Stocks: A Guide to Profitable Trading. For more information visit http://www.pennystocks.com.