So, You Just Hit a Home Run Investment. Now What?
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It's been a wonderful few years to be an investor. Thanks to a crazy 2008/2009, and a subsequent raging bull market, many people have hit some home run investments. That's great! However, this can also lead to a bit of a pickle. Maybe you're unsure of where you need to go from here. So, you just hit a home run investment. Now what?
Some Home Runs
It's been hard for me to watch the market the last couple of years, knowing there were so many opportunities that I ultimately didn't pull the trigger on. I was new to investing, and quite frankly completely scared of the market, like many others. I left my money just sitting in savings, and missed out on some really great opportunities. Here are the four companies that I considered buying above more than any others at the height of the financial crisis (scout's honor).
You didn't click this article to read about my could-of would-of should-of's. You clicked this article because you did hit the home run. Your investment has had monster returns. Congratulations.
What do you do now? Investors tend to see the issue one of two ways:
- Sell and lock-in current gains.
- Take a gamble and keep hoping the stock goes up.
Neither of these is completely adequate in helping us gain the results we want. By selling and locking in your gains, you are also locking yourself out of future gains. However, I don't believe that staying invested needs to constitute a gamble. We should never gamble away our hard earned cash.
An alternative option would be to ask yourself: "Would I invest in this company at the current price and in the current situation?" If you can answer that, then you are a long ways towards knowing whether you should hold or sell.
So what about these specific companies?
If Starbucks (NASDAQ: SBUX) isn't a company you want to hold on to, I don't know what is. After founder Howard Schultz took the company back to it's core business in 2008, this company has been growing the right way. 2012 was a record smashing year in key metrics like revenue (+14%), earnings per share (+10%), and same store sales (+7%). And now, Schultz has laid down the gauntlet for growth:
...we anticipate having 20,000 stores on six continents by 2014. Additionally, over the next five years, we plan to open 3,000 new stores in the Americas region alone.
In my opinion, there is absolutely no reason to sell Starbucks now. Locking in gains now will surely lock you out of participating in the incredible success the company is positioned to have.
Ford (NYSE: F) has been doing very well ever since the financial crisis. But does that mean that they are going to keep doing well? There are a couple of points of concern.
- Ford had to close a couple of plants in Europe because of soft economic conditions there.
- They are behind competitors in China, and are spending a lot of money building five plants to catch up.
- A good CEO goes a long way. There are rumors that Ford's Alan Mulally, widely praised for turning the company around, could retire.
- The falling Yen. When the Yen falls, Japanese car makers win big on cars sold in the United States.
What does it all mean? Well, the concerns listed above, with the exception of Mulally, are external factors. I think a lot of people will agree with me when I say that internally Ford is strong. As an investor, I would prefer to invest in a good company in tough circumstances than a weak company in good times.
Sirius XM (NASDAQ: SIRI) continues to prove the naysayers wrong. When this first came out I remember people saying "who would pay for radio when you can get it for free?" It's almost laughable to think about that now, as Sirius is pulling in almost $3.5 billion a year in revenue. As the auto industry continues to pick up steam, look for Sirius to continue their growth story.
Sirius has a near monopoly on the satellite radio market. But even though they have a huge market share, this company continues to invest right back into the business through innovations, and continues to invest in shareholders with share buybacks. This company's not going anywhere.
While maybe not your favorite company, there is a lot of reason to think that Bank of America's (NYSE: BAC) worst days are behind them. You may be quick to point out their recent earnings miss. It's true that revenue was down 8% from this time last year. And you may point out that net income missed estimates as well. I guess that's also true, but only half the story. Net income for the quarter was up 300%. To me this is a sign that the bank is cutting costs, and is making a push to get the mortgage mess behind them. That's good news.
Perhaps better still is that net income was at $0.20/share. That's way up from just $0.03/share last year. So in summary, revenue falls. Net income up. Earnings per share (shareholder value) is way up. Throw in the wildcard of a reinstated dividend somewhere on the horizon, and I see no reason why you would sell now.
Did you hit a home run investment? Don't let that be your only reason to sell your stock. If you have good reasons to sell, then fine. But with the companies that we have looked at today, I don't think selling them would be a good idea. Sure, they're home runs. But the way I see it, they still have a long way to go before their growth is over with.
Jon Quast has no position in any stocks mentioned. The Motley Fool recommends Ford and Starbucks. The Motley Fool owns shares of Bank of America, Ford, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!