I tried to find modern examples to each attribute mentioned in Chapter 8 of One Up on Wall Street. Then I thought this community could find better fits and have fun together. So please share you candidates for any category below – maybe we discover hidden gems along the way.
RECAP: Chapter 8 of One Up on Wall Street is filled with fundamental yet profound strategies. Invest in simple, easy-to-understand businesses over complex ones. Identify undervalued companies with stable returns and less competition. And, search for as many of 13 attributes of the hypothetically “perfect company.” The dream attributes of such a company go as:
It Sounds Dull—Or Even Better Ridiculous:
Companies with unexciting or absurd names often go unnoticed and can be undervalued, providing excellent buying opportunities. Lynch highlights that these companies are typically engaged in simple, straightforward businesses and the duller the name, the better the prospects could be.
My examples: Duckhorn Portfolio (NAPA) & The Lovesac Company (LOVE)
It Does Something Dull:
Companies engaged in mundane or straightforward businesses might not attract attention but often provide stable and increasing returns. Lynch appreciates companies that do boring things as they are less likely to be in the limelight and more likely to be undervalued.
My examples: Waste Management (WM) & Stepan Company (SCL)
It Does Something Disagreeable:
Businesses involved in unpleasant industries (like waste management) are often overlooked. Their disagreeable nature keeps them under the radar of most investors, potentially leading to lower valuations and higher returns for those willing to invest in them.
My Examples: Altria Group (MO), cannabis companies and Caesars Entertainment (CZR)
It’s a Spinoff:
Corporate spinoffs often result in profitable investment opportunities. Parent companies usually ensure that spinoffs have strong balance sheets and are well-positioned for success, leading to lucrative investments.
Found a good website on this: https://thezenofinvesting.com/recent-spinoffs/
The Institutions Don’t Own It, and The Analysts Don’t Follow It:
Stocks with little to no institutional ownership and minimal analyst coverage can indicate untapped potential. These “ignored” stocks might offer significant opportunities for gains before they become mainstream.
My examples: Denny's Corporation (DENN) & Turtle Beach Corporation (HEAR)
The Rumors Abound: It’s Involved with Toxic Waste and/or the Mafia:
Lynch points out that companies involved in industries surrounded by rumors or negative perceptions, like waste management or alleged Mafia connections, can offer hidden value. The negative stigma leads to fewer investors and potentially lower valuations.
My examples: Clean Harbors (CLH) & Boyd Gaming (BYD)
There’s Something Depressing About It:
Companies operating in industries that deal with the less pleasant aspects of life, like funeral services, often have consistent demand and face little competition. They are typically ignored by the larger investing community, providing opportunities for higher returns.
My examples: Service Corporation International (SCI) & Matthews International Corporation (MATW)
It’s a No-Growth Industry:
Contrary to popular belief, Lynch prefers investing in low or no-growth industries as they tend to have less competition and more predictable business. The stability and predictability of such industries can lead to steady returns.
My examples: Consolidated Edison (ED) & American Water Works (AWK)
It’s Got a Niche:
A strong niche market provides a company with a competitive edge and often a virtual monopoly in its area. Niche companies can control pricing and enjoy high barriers to entry for competitors, often leading to sustained profits
My examples: Idexx Laboratories (IDXX) & WD-40 Company (WDFC)
People Have to Keep Buying It:
Lynch prefers investing in companies that make essential, habitual or addictive products like drugs, soft drinks, or cigarettes over those making fickle products, as continuous buying ensures steady business.
My examples: Procter & Gamble (PG) & Reckitt Benckiser (RBGLY)
It's a User of Technology:
Companies that effectively utilize technology to reduce costs or enhance services are appealing. For example, a company benefiting from the technological price war, like Automatic Data Processing using cheaper computers to increase its profitability, is a better bet than the companies making the computers.
My examples: Walmart (WMT) & Domino’s Pizza (DPZ)
The Insiders are Buyers:
Insider buying is a strong positive signal. If the people who know the company best are buying its stock, it's a good indication of confidence in the company's future. Lynch values insider buying as a sign that the company won't go bankrupt soon and that management is aligned with shareholders' interests.
My examples: Zoom Video Communications (ZM) & Carnival Corporation (CCL)
The Company is Buying Back Shares:
Companies that buy back their own shares reduce the number of outstanding shares, which increases the value of the remaining shares. This action typically indicates the company believes its shares are undervalued and is a way to reward investors. Lynch sees share buybacks as a very positive move, often more beneficial than other use of capital like dividends or acquisitions.
My examples: Apple (AAPL) & Berkshire Hathaway (BRK.B)
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