Topic: How To Invest

How we spot the best investments for long-term gains

We designed our Successful Investor ratings (Highest Quality, Above Average, Average and Extra Risk) to help you quickly and easily identify the best investments for long term profits. These stocks have the asset size and investment quality to weather market downturns and changing industry conditions.

You’ll find our rating next to each stock we recommend in our newsletters — including the safety-conscious stocks we recommend in Canadian Wealth Advisor, our newsletter for lower-risk investing.

Here are three of the factors we consider when we assign a rating to a stock.

1. The ability to profit from secular trends: The best investments in this category are companies that can take advantage of trends that go far beyond mere business cycles and reflect ongoing changes in society. Examples include economic liberalization, the maturing of the baby boomers, and the productivity gains available from continually evolving computer and communications technology.

A company that would score highly here is Baxter International (symbol BAX on New York), one of the companies we cover in our Wall Street Stock Forecaster newsletter. Baxter gets most of its revenue by making medical equipment, such as intravenous equipment and systems, as well as dialysis equipment. That puts it in position to profit as the North American population ages.

2. The ability to serve all shareholders: The best investments in this category are firms that are free of heavy-handed government regulation, free of too much dependence on a single supplier and free from abuse by insiders.

How Successful Investors Get RICH

Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.

How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.

3. Industry prominence — or even better, industry dominance: Companies that are prominent, or dominant, in their industries are some of the best investments you can make. That’s because they are especially well positioned to weather economic downturns and fend off new competitors. BCE Inc. (symbol BCE on Toronto), Canada’s largest telephone service provider (and one of the stocks we cover in Canadian Wealth Advisor), provides an example.

BCE is facing rising competition. Two new firms, Globalive’s WIND Mobile and Public Mobile, have just entered the Canadian wireless market. A third company, Mobilicity, is preparing to offer wireless service as well.

However, BCE’s diverse operations give it a clear advantage in its fast-changing industry. That’s because it can offer satellite TV, land lines, high-speed Internet and wireless services in a single bargain-priced bundle. These bundles help increase the company’s revenue, and make it hard for its customers to switch to a competitor — if they switch any of their services to another provider, they lose the discount.

You can get our full analysis of safety-conscious stocks and a wide range of other investments, including income trusts, exchange-traded funds (ETFs) and tax-advantaged investments, in Canadian Wealth Advisor. What’s more, you get one month free when you subscribe today. Click here to learn how.