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National, Communal, and Economic Clusters for Top Stock Picks (Part 1)

20 February 2008 - Miscellaneous - Editor

Not everyone cares for marketing, but it is behind many top stocks. We are all customers and equate marketing with common sense. Segmentation is one of the disciplines, which sets marketing professionals apart. Age, sex, wealth, and tongue are common ways of dividing a market. There is no money to be made from such easy exercises. Inspiration and hard work can, however, produce winning clusters. This article follows our earlier piece entitled “Customer Benefits versus Profits for Financial Planning Service Providers”. We want to take the marketing and stock value idea further.

Coca-Cola, McDonalds, IBM, and Toyota mean the same things to people everywhere. They also support top stock picks. Your nationality and race do not matter at all. Tough luck if you cannot afford to buy these brands, because there are plenty of folks who can. Besides, these brands are aspirations – everyone hopes to be able to buy them freely! The ability to attract custom from multiple market segments is a great way to provide profits for stocks. That is why stock investors should not sneer at marketing! Financial statements are about the past: understanding clustering helps to unlock subtle stock value.

Surfing Clusters to Keep Stocks Hot

Let us return to the Coca-Cola, McDonalds, IBM, and Toyota example. Coca-Cola did not start life with a diet version. McDonalds did not put information on nutrition values on its first trays. IBM pioneered personal computers, but then sold its laptop business. Toyota is now as serious about hybrid engines as it once was about Lexus as a luxury brand. The common thread is that you cannot rest on laurels of customers. A stock will stay profitable provided that the management team behind it can anticipate customer trends. Fashion designers tell us what to wear next fall, but most stocks have no powers over customer habits and choices!

Hard-headed stock investors will find this line of thinking shaky. Why not just buy stocks on price and dividend ratios? Productivity, especially in lean times, is one reason: you cannot find good stock value easily when the economic outlook is depressed. Stocks managed by teams that can keep adapting to the needs of their target customers, are always good buys. Sometimes professional marketing may call on you to drop customers – as IBM has done with its laptops. Contrast this with Detroit, which has kept making gas-guzzling SUVs right in to the $95+ per barrel crude oil era!

National, Communal, and Economic Clusters for Top Stock Picks (Part 2)

 


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