McDonald's - Consistently Great

Stocks Worth Buying Again
By Dave Mock July 13, 2008 Comments (0)
4 Recommendations
It's always fascinating to read stories about average, everyday people who built fortunes by regularly investing small amounts over long periods of time in companies such as Chevron (NYSE: CVX), McDonald's (NYSE: MCD), and Coca-Cola (NYSE: KO).
If you worked for these companies, or regularly "trickled" money into them over the years, having amassed a fortune is quite feasible -- Chevron, McDonald's, and Coca-Cola have returned roughly 14.1%, 14.9%, and 15.0% annually over the past three decades or so, respectively.
But you can also get market-beating returns by buying into great companies at more opportune times -- whenever the stock goes on sale. Rather than regularly investing small, fixed amounts, investors can use the simple method of buying a stock in portions to manage risk and boost returns.
First, find a solid businessOf course, every situation is different, but big returns on investments always come on the backs of fundamentally strong businesses. And if you're confident that you've purchased shares in a great company, why wouldn't you consider buying again, particularly if the stock price is significantly below intrinsic value? Especially in pessimistic markets (like today's), fundamentally strong businesses can be bought for good prices.
For large, stable companies, buying more shares when the outlook for them is bleak can be rewarding. For instance, buying more British American Tobacco back at the peak of investors' pessimism over tobacco lawsuits would have juiced your returns considerably -- the stock has returned more than 1,100% from its low in 2000.
For younger, riskier companies, a strategy of acquiring shares in portions is a smart play. It limits your initial outlay and gives you a chance to buy again if shares experience an unwarranted drop.
For example, look at top retailer Best Buy and Internet auctioneer eBay (Nasdaq: EBAY). Both companies' stock soared several hundred percent in the late 1990s, only to have their prices whacked more than 60% from the market's peak in March 2000 until the end of that year. While most investors were licking their wounds and kicking themselves for not selling sooner, sharp investors who saw long-term value and competitive advantages in these companies were taking advantage of the pessimism.
Buying more shares of Best Buy and eBay near their lows at the end of 2000 would have earned you 251% and 225%, respectively, on that new money. The larger economic conditions had only a temporary impact on the solid, proven business models behind Best Buy and eBay.