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3 stocks that smashed the market

With the books closing on another financial year and the dawn of a new year just beginning, it’s a good time to evaluate your portfolio and think about what you got right, what you got wrong and what you could have done better.

The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) returned 17.3% for the 12 months ending 30 June 2013. This was a mighty impressive result and the best annual return since the heady boom year of 2007.

The following three companies all produced market beating performances (as the chart below shows) for shareholders over the past year, and all have one thing in common. They are using technology to provide an efficient, lower cost, superior service to customers.

Computershare (ASX: CPU) has near-perfected the role of providing outsourced investor services to companies. The use of technology systems has allowed Computershare to build enormous scale and provide its services for less than a company can do it in-house. Having snared a large portion of the market share in Australia, the company has moved offshore where it continues to expand both organically and through acquisition. Its appealing business model helped the firm grow earnings in the first half, with growth expected to continue into the full year. The company’s share price has responded by growing over 38%.

Carsales.com (ASX: CRZ) and Seek (ASX: SEK) have also used technology to their advantage. Their websites have become the market leading sites for classified advertising of automobiles and jobs respectively. Their dominant market share creates a positive feedback loop, and when coupled with the continual shift online and the lower cost compared with traditional print classifieds, these two business models are incredibly appealing. In a year in which the broader economy and market has struggled to increase profits, Carsales.com and Seek both managed double-digit earnings growth, which helped their share prices rally 57% and 43% respectively.

tmchart

Source: Google Finance

Foolish takeaway

Achieving portfolio returns that are over twice the return of the index is an unrealistic expectation for most investors over the long term. However by concentrating on some of the best companies and business models and remaining disciplined in one’s purchase price, long-term investors can improve their chances of outperforming the market.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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