When you buy stocks, what do you look for?
Would you try to find a company with a durable competitive advantage?
It also needs growth prospects, right?
What about a reliable dividend?
Good management is also a 'must-have'.
And of course, valuation has to come into the investment case somewhere.
If you're looking for each of the above qualities in your next stock purchase, keep reading…
3 stocks to buy
- When it comes to competitive advantages, it's hard to go past Coca-Cola Amatil Ltd (ASX: CCL). CCA is the exclusive distributor of Coca-Cola and Beam branded products throughout Australia. Whilst its key growth prospect, Indonesia, is proving a tough market to crack, investors can afford to be patient with the stock and will have a forecast 3.9% partially franked dividend to keep them company while they wait.
- Woolworths Limited (ASX: WOW) is another ASX stock to be sold down in recent times. Concerns over slower profit growth have caused many analysts to re-rate the stock downwards. However, for income investors, Woolworths is hard to go past for relative safety and dividend yield at these discounted prices.
- Share registry business, Computershare Limited (ASX: CPU), should be a name familiar to all stockmarket investors. It's the company which connects shareholders to their respective companies. It also provides a range of additional services to local and multi-national firms, such as facilitating dividend payments, advising on corporate matters and more. With sticky and recurring revenues it offers a reliable and partially franked dividend yield.
2 stocks to avoid
- After nearly going bust in the early 1990s, shares of Westpac Banking Corp (ASX: WBC) have soared. However, today Westpac fails to tick-off all the characteristics of a successful long-term investment (which we detailed above). For example, it sells a commodity product (Westpac's loans are the same as NABs), is predicted to enter a period of low revenue growth and its valuation has become eye-watering. As such, it's probably best avoided for now.
- The same could be said for Rio Tinto Limited (ASX: RIO). Yes, its shares have fallen 12% in the past year. But if commodity prices continue to fall (as many believe), Rio's dividend will dry up and its share price will likely go with it. Given its status as the lowest cost iron ore miner, it's unlikely to go bust anytime soon. However the medium-term outlook for all iron ore miners appears bleak. Buyer beware.
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