Shop with these companies? Why not invest in them too?

The saying "buy what you know" may be very profitable advice.

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Investors don't have to buy into new start-ups, high-tech pharmaceutical companies or penny stock mining companies to make an above-average rate of return. You can look at the businesses, stores and company names you see around you, and do just as well.

For example, you may have looked at property on of REA Group (ASX: REA), booked a flight with Flight Centre (ASX: FLT), or shopped at Kathmandu (ASX: KMD) in the past six months. If you had bought shares in these companies six months ago, your stocks would be up 41%, 37%, and 63% respectively now.

Just with those three choices, you could have smashed the returns of the average professional fund manager who is just trying to match market return. Six months from now these three could be even higher, but of course no one can predict exactly.

Here are four more companies that you probably know and even use that may make good investments.

Toll Holdings (ASX: TOL), a logistics and transport service provider, has trucks delivering goods more and more as the economy is growing. Big retailers use its trucks, even though they're rebranded with the retailer's name. More goods shipped means more business for the road freight transport market share leader. If you get passed by a lot of its trucks when you are out driving, thank the drivers for the stock tip. It has a price-earnings (PE) ratio of 14, and is about $5.70 per share.

Fashion apparel retailer Specialty Fashion Group (ASX: SFH) manages the brand names Millers, Crossroads, Katies, Autograph, City Chic, La Senza and Stylefix, and may be in your local shopping mall. It has nearly zero debt, but revenue has been flat for several years.

Should the economy begin strengthening, it would benefit from consumers' increased disposable income. Its share price is $0.86, and it has a PE of 12. Cash flows have been improving over the past three years, and 2013 return on equity was 19.2%. Profit margins are thin, so it will need a lot of sales volume to pump earnings up.

Woolworths (ASX: WOW) continues its uninterrupted revenue growth for the tenth straight year. Net profit was up from last year, after it took a $559.7 million abnormal expense, to $2.26 billion. It grows with the population growth of the nation, and in the supermarket and grocery stores industry, it holds the top spot with 38.7% market share.

You may be shopping there already, so if it's making a profit off of selling to you, make some of that money back by buying the stock. Its PE ratio is 17 and the share price is about $33.40. It may not be a fast grower because of its sheer size, but it is a stalwart that will keep going forward (and hopefully up) as Australia grows in numbers.

Online service provider Seek (ASX: SEK) is best known for its jobs listings website of the same name. It is taking its employment classifieds online portal success to other countries like China, Brazil, Mexico and other South East Asian countries.

If you have been planning a career move, or have been made redundant recently, most likely you have visited this website. It's free for viewers, but it's the employment agencies and advertisers that have driven net profits from $55.3 million to $300.1 million in the last four years. A sagging economy hasn't deterred them. With net profit margins of 22.4% and return on equity of 17.9%, they have busy at work helping you find a job. Start another income stream from its share returns. Right now its PE is 29, so it isn't at bargain prices.

Foolish takeaway

Just by being an average shopper and noticing the companies around us that are doing great, steady business, we can have an edge on stock traders, institutional investors, and market pundits. Still, don't just buy stock because you like the company. You still have to learn about how the company works so that you understand its story. Being familiar with a company is just the first step in stock-picking.

Think about your own total return and find out about companies with good dividends. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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