A strong company in a growing industry is a common recipe for success. If you look at the history of stock investing, this point comes up constantly. Investors should be on the alert for mega-trends because they also help to ensure your success.
What is a mega-trend? A mega-trend is a major development that has huge implications for most (if not all) of society and for a long time to come. Good examples are the advent of the Internet and the aging of America.
Both of these trends offer significant challenges and opportunities for our economy. Take the Internet for example. Its potential for economic application is still being developed. Millions are flocking to it for many reasons.
And federal government studies tell us that senior citizens (over 65) will be the fastest growing segment of our population during the next 20 years. How does the stock investor take advantage of a mega-trend?
Many people thought that the road to Internet riches was paved with dot-corn businesses. Investors lost millions rushing into Internet stocks before they found out how these companies actually made money.
The Internet is a fantastic technology, and its business and economic impact will become more and more evident in the months and years to come. However, investors should understand how people and businesses can actually profit from the Internet.
The serious investor says, "Where is the money really being made on the Internet?" As hundreds of the dot-corns spend tons of money to establish their businesses, who is getting their money? That's right, electric utilities, delivery services, and other companies that service Internet activity.
What industries and mega-trends seem promising right now? Think about this question as you look for potential growth stocks. Companies that have established a strong niche are consistently profitable. Look for a company with one or more of the following characteristics:
A strong brand: Companies such as Coca-Cola and Microsoft come to mind. Yes, other companies out there can make soda or software, but a business needs a lot more to topple companies that have established an almost irrevocable identity with the public.
High barriers to entry: United Parcel Service and Federal Express have set up tremendous distribution and delivery networks that competitors can't easily duplicate. High barriers to entry offer an important edge to companies that are already established.
Research & development (R&D): Companies such as Pfizer and Merck spend a lot of money researching and developing new pharmaceutical products. This investment becomes a new product with millions of consumers who become loyal purchasers, so the company's going to grow.