These market leaders need to be in your portfolio

Don’t assume the underdogs are always the best investments.

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Many investors spend countless hours trying to find the next big thing to invest in, hoping to find the company that could have a chance at toppling the market leader off its perch to take the top position in that particular industry. While that strategy works in some instances, more often than not it is the market leader itself that is the better option to invest in – provided they are trading at a reasonable price, of course.

For starters, there is usually more risk involved with backing the underdog. The market leader is normally more dependable and will more than likely have a stronger balance sheet and financials, as well as better backing from investors and other stakeholders. Further, they are usually less volatile when the going gets rough in the overall market, meaning that you can sleep better at night knowing your money is in safe hands.

Beverage distributor Coca-Cola Amatil Ltd (ASX: CCL) (“CCA”) is a perfect example of a market leader which, at very least, deserves a position on your watchlist. The company’s overall profits have been challenged in recent times by its primary competitor Schweppes, which has undertaken aggressive discounting measures to gain market share. The good news is the pricing war between the two companies cannot last forever and the strength of CCA’s business should prevail to deliver shareholders with excellent returns in the long-run.

Sleep apnoea device maker ResMed Inc. (CHESS) (ASX: RMD) is another strong candidate for a position in your portfolio, having increased revenue in every quarter of operations for nearly 20 years. Cases of sleep apnoea, as well as various other respiratory disorders, are increasing in frequency which should see demand for the company’s products continue to climb for years to come. ResMed recently released its results for the nine months ending March 31, which revealed that revenue and profit were up 4% and 11% respectively, compared to the previous corresponding period. It seems as though the shares might be returning to the market’s favour after dropping considerably between October and April, but it’s certainly not too late to pick up a piece of the action!

When it comes to the entertainment and leisure industry, Village Roadshow Limited (ASX: VRL) is your way to go. While the stock offers a generous, fully franked 4.2% dividend yield, it also has plenty of room to grow, making its current $7.39 share price look quite attractive. It operates a number of theme parks, including Wet ‘n’ Wild, Sea World and Movie World and is looking to expand throughout Asia which should see shares climb much higher in the long-run.

Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.

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