Steal a Page from Investing Legend Peter Lynch

Wednesday, 13 Apr 2011 01:12 PM

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Investment-securities analysts regularly review SEC filings, corporate-financial statements and industry research reports on the companies that they follow. In addition, they often have discussions with persons in management positions at those companies in an effort to determine the future direction of those companies’ revenues and profits and the associated direction of those companies’ stock prices.

Although I also employ that process when deciding upon which securities to buy, I sometimes use the “homemaker’s approach” to selecting certain stocks. In using that phrase, I’m referring to the concept of investing in stocks of companies whose products or services that either my wife and I or other people we know use on a regular basis, or that an increasing number of persons appear to be using.

I use the term “homemaker” because many of the more-profitable stock-market gains earned by legendary investor Peter Lynch were generated from investments in stocks of companies whose goods or services his wife purchased on a recurring basis.

Some good examples of those types of stocks now, in my view, are Tempur-Pedic (TPX), Panera Bread (PNRA), and OpenTable (OPEN).

Make 12.3% Without Touching Stocks, Bonds, or CDs . . .

Tempur-Pedic manufactures and sells high-quality foam mattresses and pillows based on technology that was developed by the National Aeronautics and Space Administration (NASA) during the 1970s to help cushion astronauts during liftoff. The company sells its products in approximately 80 countries.

Panera Bread operates approximately 1,450 quick-casual restaurants in 40 U.S. states, the District of Columbia, and Canada. One of the larger restaurant chains in the United States, Panera Bread serves approximately 6 million customers a week.

The company’s restaurants feature high-quality, reasonably-priced food in comfortable environments. In addition to its offerings of made-to-order sandwiches using a variety of freshly-baked artisan breads, Panera Bread’s restaurants offer fresh soups, salads, bagels, pastries, and gourmet coffees.

OpenTable provides free, real-time restaurant reservations for diners through an online booking system that’s based on a customer’s criteria, such as the type of cuisine, prices, and location. The company’s service enables its users to search for available seating at approximately 12,000 upscale restaurants in the United States, Canada, Germany, Japan, Mexico, and the United Kingdom.

OpenTable generates its revenues from charging participating restaurants an installation and monthly license fee for its computerized reservation system and a fee for each restaurant guest that is seated through the company’s online reservations. Since its founding in 1998, OpenTable has seated more than 130 million diners.

Each of the companies mentioned above share two very important characteristics:

• First, both my wife and I have either purchased those companies’ products (Tempur-Pedic and Panera Bread) or used their services (OpenTable) on more than one occasion during the past 12 months.

• Second, an increasing number of other people also purchased or used those companies’ products or services during the past 12 months.

As a result of the increasing demand for those companies’ products or services, Tempur-Pedic, Panera Bread and OpenTable grew their revenues and earnings at very fast rates during each of the past four quarters, and their stock prices followed suit, with TPX appreciating 63 percent, PNRA gaining 28 percent, and OPEN advancing 65 percent over the past six months.

About the Author: David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.

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