Over the long term, the S&P 500 has produced an annualized return of about 10% per year. For the individual investor aiming to surpass the broader index, the key is to look for companies that outperform the market consistently.
Despite the challenges faced by many active fund managers in beating the market, there is a crucial characteristic that average investors can focus on to enhance their returns. These stocks stand as evidence of the efficacy of this strategy.
Empathy as an Investor
In the realm of individual investors, it’s easy to overlook the value of firsthand experience with various businesses, simply due to being a customer of many companies. By leveraging this perspective to recognize businesses excelling in customer service by providing exceptional products or services, potential stock ideas can surface.
Ultimately, it’s the customers who generate revenue for companies, a fact that cannot be disputed. This revenue translates into profits and cash flows, culminating in content shareholders.
Exploring Exceptional Performers
When adopting this mindset, identifying businesses that consistently delight their customers becomes a straightforward task. Here are five prime examples to enlighten your investment journey.
Costco(NASDAQ: COST) enjoys immense popularity with its customers, drawn to the hunt for treasures and exceptional value the store offers. The remarkable worldwide membership renewal rate exceeding 90% exemplifies the loyalty of its customer base. Noteworthy is the 40% surge in member households over the past five years. Over the last decade, this leading retail stock has yielded a whopping total return of 807%.
Amidst fierce competition in the restaurant industry, Chipotle Mexican Grill (NYSE: CMG) has carved a path to success by prioritizing real ingredients, maintaining a simple menu, and delivering great value to customers. This was especially evident after the 2015 health crisis, where the business managed to rebuild trust among consumers and investors. The company’s shares have surged by 226% in the last five years, partly propelled by 114% growth in sales during that period.
Image source: Amazon.
Technological heavyweights also standout in this regard. Consider Netflix (NASDAQ: NFLX), which revolutionized the media industry with its streaming service now boasting 278 million global subscribers. By offering a superior viewer experience at an affordable price compared to traditional cable TV, the business has excelled.
Amazon (NASDAQ: AMZN) under the leadership of founder Jeff Bezos, has long prioritized customer obsession as a top strategic imperative, evident in the stellar success of its Prime membership. This program offers fast and free shipping for millions of items along with a host of additional perks.
Then there’s Apple (NASDAQ: AAPL), renowned for offering some of the world’s most coveted products. The company’s seamless integration of hardware and software has created a robust ecosystem that fosters customer loyalty, with an active installed base exceeding 2.2 billion. Apple has historically wielded pricing power by introducing newer devices at fixed price points while discounting older models, a proposition consumers find hard to resist.
Few investments can rival the stellar performance of Netflix, Amazon, and Apple, with their stocks soaring by 933%, 899%, and 768%, respectively, over the past decade.
Value for Your Investment
These five stocks exemplify companies that consistently prioritize customer satisfaction. By observing similar players in the market, investors can enhance their analysis toolkit before finalizing investment decisions.
However, it’s crucial to note that the previously mentioned stocks may not be immediate buys at present. Valuation plays a critical role. Assessing the forward price-to-earnings ratio in conjunction with other factors, particularly growth potential, suggests that investors should await a pullback before considering investment in Costco, Chipotle, and Apple. Conversely, Netflix and Amazon present more attractive purchasing opportunities at present.
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