On April 26, the Dow hit a 52-week high of 11,258.01.
It lost -11.0% through June 2 and has since clawed back some ground
but remains -8.5% below its late-April high point. We lived through
some big swings in May.
Those big moves don't look like they will abate in the near-term:
The "Fear Index ," a measure of investor sentiment based on options
trading, has risen to 30 today from 22 in late April, signaling
investors are increasingly edgy and uncertain.
The soft economic recovery at home and troubles in Greece and Spain
and elsewhere aren't helping anything, nor is the oil spill in the
Gulf of Mexico. In a climate like this, when the market has the
opportunity to cathartically dispel its anxiety, it will generally
take it -- and send prices plummeting.
But despite the challenging environment, a select basket of stocks
are still delivering tremendous returns.
Even on the market's worst days, some securities are actually
rising in price, sometimes substantially. Great stocks can see
their shares gain a lot of ground in a bear market .
What's so special about these stocks?
What sets them apart?
Why, when strong companies like
Johnson & Johnson (
lose -7.8% and tech bellwethers like
Microsoft (Nasdaq: MSFT)
shed -14.9% of their value, can other companies move in the other
direction despite a prevailing negative sentiment on Wall Street?
The answer lies in a major business advantage that is so strong, so
resilient, that it can defy market gravity. This advantage might be
a technological innovation or a new product or a service that's
making money hand over fist.
Whatever this exceptional advantage is, it tends to insulate the
company's value in bad times. And in good times it allows such
companies to do some real open-field running.
One example of such a company is
Coinstar (Nasdaq: CSTR)
. This innovative firm began putting change-counting machines into
grocery stores a number of years ago. Customers bring in a jar of
change and Coinstar's machines count it -- collecting a steep fee
in the process. The machines then print a receipt that can be
redeemed for cash at the store's customer-service counter.
Good business model . Popular service.
Then Coinstar got really innovative. It partnered with major
retailers to allow customers to have their change counted with no
fee if they would allow their money to be put on a gift card. Gift
cards are a gold mine -- they're basically short-term loans that
don't pay interest, allowing all those unused balances to generate
a return for the company. All the customer gets -- aside from his
change counted -- is convenience.
Then came the coup de grace.
Coinstar got its hands on a serious game-changing business called
RedBox. These kiosks, now nearly ubiquitous, allow customers to
rent DVDs for a dollar a day. It's all billed to a customer's
credit card and is bar-code based, so a customer can rent from a
machine at, say, the grocery store and return it to any other
convenient location. These remarkable machines are extremely handy
and very, very popular. There's always a line at the one sitting
outside the grocery store near my house.
Here's the kicker: As the Dow fell as much as -11% from April 26 to
the present, shares of Coinstar -- an innovative, game-changing
company -- jumped +50.6% through Wednesday's close. The chart below
proves the adage "a picture is worth a thousand words."
So that's how the company has performed in tough times. In better
markets, though, Coinstar screams like a Formula One car down a
clear stretch of track. For the past year, it's up +87.1%. For the
past five years, Coinstar has gained +186% (versus a gain of just
+10.9% for the Nasdaq). Since its debut in 1997, the company has
grown in value by +439%, about eight times its benchmark .
So let me ask: Would you rather invest in revved up companies like
Coinstar or would you prefer the lackluster results of the overall
Well, I sure know which one I'd pick. I know which of those two
choices has the power to turn me into a multi-millionaire.
And the fact is that these companies aren't as rare as you might
think. In the month that the market took its -11% dive, I found 500
stocks in the United States that gained more than +10%.
How many of these did you have in your portfolio?
I'll tell you about another that's in mine: This small biotech
company is going to turn the plastics business on its head. You
haven't heard about this company on the evening news yet or read
about it in the paper, but you can bet your boots you will. In the
meantime, the people who are in the know are holding their shares
dear. They didn't lose an inch of ground in the past month of
Like Coinstar, this company's business advantage is so enormously
compelling that it puts a deep moat around the shares.
You see, plastics are derived from petroleum. They use oil. And we
use a fantastic amount of plastics. I mean, when was the last time
you bought anything that didn't have plastic in it or on it? Maybe
an apple? Heck, even it comes in a plastic bag!
But that's changing.
A smart startup has special bacteria that it can introduce into
corn. These little bugs eat the corn and excrete a substance known
It looks like plastic.
It's moldable like plastic.
It's resistant to heat and water just like plastic.
But it's not plastic. It's a totally renewable source of a material
that could vastly change how we manufacture the things we use in
our daily lives. In fact, Paper Mate is introducing a pen made from
It's called the Paper Mate Biodegradable.
That's right. This plastic is totally natural. It doesn't harm the
environment at all. Throw it into your compost pile and it will
break down just like lawn clippings, a cigar butt or an orange
peel. It is a totally "green" material -- a useful product that
eco-friendly consumers are going to eat up.
Shares of this little known company have soared +28.9% in the past
month. In the past 12 months they've returned a remarkable +121.7%.
Another company that defied the market's gravity was a teeny little
British oil exploration firm that I bet not even one investor in
10,000 had ever heard of. I discovered this company as I watched a
diplomatic flap unfold after this company and a couple of other
British oil companies started drilling some very promising wells
off the shores of The Falkland Islands.
I quickly snapped up shares of
Rockhopper Exploration (London: RKH)
, which thumbed their nose at a falling market and skyrocketed
+287.4% in about 90 days! Falling market or not, locating a major
undersea field that could contain billions of barrels of oil is
going to add to a stock's price. And it did.
I'll be including the name of the plastics company I mentioned
earlier, along with nearly a dozen other potential game-changers
like it, in my new
newsletter, scheduled for a mid-month launch. This unique
publication will focus exclusively on the stocks that have the
potential to explode.
Want a sneak peak?
Please join me at a free webinar on June 15
, where I'll discuss four companies with game-changing businesses
that could well be the next
Apple (Nasdaq: AAPL)
Google (Nasdaq: GOOG)
. Click here to sign up.
Editor: Government-Driven Investing
Disclosure: Andy Obermueller does not own shares of any security
mentioned in this article.