The Radically Simple Way to Make Money in Stocks

By Paul Tracy

The Radically Simple Way to Make Money in Stocks

Intel (INTC)

Three Important Criteria

Editor’s Note: In today’s Cabot Wealth Advisory, you’ll hear from Paul Tracy, StreetAuthority co-founder and the chief investment strategist of StreetAuthority’s Top 10 Stocks. Paul discusses what he calls a radically simple way to make money in stocks. I hope you enjoy his issue!

If you feel like making money in the stock market has to be complicated, then you’ll want to see the simple way we scored a gain of more than 20% in just weeks.

The Radically Simple Way to Make Money in Stocks

We first brought this stock to our readers’ attention when we selected it for The 10 Best Stocks to Hold Forever report. A couple of months later, in September, I added 350 shares to my $100,000 “real-money” Top 10 Stocks portfolio.

The stock was Intel (INTC). If you ask most investors, they’d tell you Intel is a “boring” company that hasn’t gone anywhere for years. But we are up more than 20% in a matter of weeks, and that’s after a recent pullback.

Intel (INTC) Chart

I’m not telling you this to blow my own horn, or brag about our success.

I’m bringing it up because what led my team and me to this gem was an investing philosophy that we like to follow at StreetAuthority. And it’s so simple that anyone can use the exact same strategy in their own investing.

Let’s face it. We’re not Warren Buffett. And we aren’t Wall Street Insiders. And while StreetAuthority spends a small fortune (over $1 million annually) on a research team and tools to find some of the best stocks on the market, we don’t have access to “inside” information that any other experienced, well-researched investor wouldn’t. And we don’t use some complex formula to derive our picks.

So what’s our secret then?

Well, for years investing has seemingly become more complicated. Options strategies, complex derivatives, high-frequency trading, and dozens of other investing methods that only a PhD could understand have been used to make money in stocks.

But we don’t use any of those … and I doubt you do either.

In fact, we don’t recommend these strategies to the vast majority of investors. Unless you’re an experienced professional, the majority of them are ineffective.

Instead, when we decided to tab Intel for our report … and when I added 350 shares to my real-money Top 10 Stocks portfolio, the reasoning behind it was simple.

First and foremost, Intel is a bellwether of the tech industry. With over 80% of the market share for PC processors, it is one of the most prominent tech companies in the business.

To add to the allure, Intel is using its stockpiled cash to buy back stock … and lots of it.

In the first three quarters of 2011, Intel bought back 468 million shares–a value worth roughly $10 billion. And management still has another $14 billion allocated to future buybacks. At recent prices, that adds up to over 587 million more shares that will be bought back–nearly 10% of all shares outstanding.

While that was good to see, there was something else that drew us to Intel. It’s something unique that makes Intel stand out against a backdrop of other tech companies … a dividend.

Paying a dividend is rather uncommon in the technology sector. Major tech companies Apple (AAPL), Google (GOOG) and Intel’s rival Advanced Micro Devices (AMD) don’t pay a cent.

So when we see a major tech player like Intel offering a quarterly dividend of $0.21 a share, it doesn’t go unnoticed.

While the current 3.5% yield might not sound exciting, Intel has boasted 110% dividend growth over the past five years.

If that pace continues–and right now there is little reason to think it won’t–just five years from now Intel will pay $0.44 per share every quarter, giving today’s investors a future yield of 7.4% based on today’s purchase price.

When a $120 billion titan like Intel shows that kind of dividend growth, it certainly grabs our attention.

Add it up, and Intel met all three of the simple criteria I like to use to identify stocks that have the potential to outperform over the long term …

  • It enjoys huge (and lasting) advantages over the competition.
  • It buys back massive amounts of its own stock.
  • It pays its investors each and every year by dishing out fat dividends.

After years of research, I’ve found that more often than not, companies that fit in these three simple categories are the ones that can make you money long-term.

It makes sense–strong companies that take care of their shareholders tend to do better over the long run. It doesn’t take a PhD to understand that.

Of course, with investing there’s never a surefire thing. Even the seemingly strongest companies growing dividends and buying back shares aren’t guaranteed to see a positive return.

But that said, I think investing in companies with those traits gives you the best chance of making money. After all, I don’t know a better long-term strategy than picking competitive, shareholder-friendly companies with a history of success. It’s easy, it’s simple, but better yet … it works.

All the best,

Paul Tracy
StreetAuthority Co-founder and Chief Investment Strategist of Top 10 Stocks

Note: This philosophy was the inspiration behind my 10 Best Stocks to Hold Forever report. Not all the stocks I selected meet each of the three criteria listed, but most do … including Intel.

You can learn more about the rest of the other nine “Forever” ideas–including several names and ticker symbols–by viewing our latest research here.

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