Play "Top Five Desert Island Items" to Find Winning Stocks

By BA McKenna - June 29, 2012 | Tickers: BUD, AAPL, GNC, SBUX, HSY | 0 Comments

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What five luxury items (non-necessities) would you take to a desert island?   

Forget Gilligan's Island and Survivor, and put images of shipwrecks and head-hunting natives out of your mind. We're going for enjoyment. So consider yourself on a long vacation on a safe and picturesque island.

You have an endless supply of water and food staples, but only the bare (pun intended) necessities when it comes to clothing, shelter, etc. Sorry, no people or furry friends allowed. Otherwise, anything goes!  

Got your five?  

Here are mine:

Informal Research Results

I browsed through a site that posed this question but limited the items to three. Here are two representative responses:

A student in her 20s from the US: 

"E-reader device, my golden retriever, and pina coladas."

A business owner in his 50s from Scotland:

"Laptop and broadband, a machine for making decent cappuccino, and a bottle of Cragganmore whiskey."

Some named general items, while others named specific brands (in and of itself meaningful). 

While my methods were far from scientific, I can safely say it's a good thing drinking while downloading is not illegal. Alcohol seemed to make over half the lists. The other clear winners included access, via various devices, to the Internet and books and/or music. These findings seem to hold true regardless of age, location, or gender. Coffee and chocolate also popped up a fair amount. 

Rationale Behind Game

This game helps identify companies that make products and services that people consider near-necessities, even if they're far from necessary for survival. What could be better for a company—and its stock—than having consumers clamoring for its product, even in rough economic times? 

Companies that make products people don't want to do without can make for great stock investments. The operative word is “can.” But we’ll get to that later.

Big Winners You Could Have Found

Playing this type of game just every couple of years would have enabled you to perhaps identify some of the biggest gainers over the past decade or so.

Is there any doubt that many of those who bought iPods as early as 2001, iPhones as early as 2007, or iPads as early as 2010 would be packing their favorite Apple (NASDAQ: AAPL) device to take to the desert island? Had they invested in Apple stock at the same time, their profits would range from huge to astounding.

And surely many coffee lovers would have listed their single-serve Keurig machine in time to catch much of Green Mountain Coffee Roasters tremendous stock price run-up. Ditto the multitudes of movie buffs who were/are Netflix subscribers. Granted, both these stocks have recently suffered huge drops, but they're still multi-baggers over the long-term.  

Top Five Desert Island Stock Candidates

I’m using my list, adjusted a bit to make me more representative of the typical by hopping (eh-hem) beer over running shoes and into slot #5.                

Just about everyone is likely familiar with four of the five stocks, but I'd imagine some of you didn't know that GNC (or General Nutrition Centers) is a publicly-traded stock as of 2011. Its IPO was likely a bit lost amidst the hype of 2011's Internet stock IPOs.

Be creative! There's no right way to do this. Add 10 items to uncover even more possibilities. Add micro-caps (companies with market caps under $300 million) through to large caps (market caps over $10 billion), depending upon your preferences. Play as a group. You'll not only have fun, but also gain insight into friends and family. Any possible stock ideas will just be an added bonus.

I'm keeping things simple here. However, if I were actually doing this exercise, I'd list several possible stocks to correspond with some items. For instance, though Apple's iPad is the dominant product in the tablet market, I could also have listed Amazon, as its Kindle is no slouch. Besides, taking AMZN with me to the desert island would also mean that I could order just about anything and have it shipped (literally!) to me. 

Likewise, I could include Vitamin Shoppe under #4; and other beer, wine or spirits producers under #5. Those are obvious additions. I could also be more free-wheeling, and include Whole Foods Market under #4. The rationale would be that eating organic and less-processed foods falls, like taking vitamins, under a broader "healthy living" category.

Top Five Desert Island Stock Candidates:  1-Year & 5-Year Performances

Stocks are listed in order of 1-year return:  

(Data per Morningstar)

As you can see, each of these five stocks has trounced the market over the 1- and 5-year periods ending June 28, 2012. (Note: S&P 500 index is as of June 27.)

Superior past performance is usually meaningful, as it often indicates companies not only have a great product, but can also successfully execute their business plans. That said, it's not indicative of future performance. So, we've got to evaluate the stocks to determine if they're likely to be superior investments going forward.

Stay tuned for an article or articles on "Top Five Desert Island Stocks: Evaluating The Candidates."

(Pic source: unpics.com) 

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