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Companies Turning the
Corner to Profitability |
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Published:
August 18, 2008
Amazon.com (Nasdaq: AMZN) was one of
the most wildly hyped stocks during
the late-90s Internet boom. Early in
its history as a public company,
Amazon clearly established that
consumers like the convenience of
buying books online -- sales soared
in its early years as a public
company. Amazon truly appeared to be
revolutionizing the book business.
But there was one small problem --
the one thing that Amazon didn't
generate during that time period was
profits. It wasn't until 2002 that
the company actually turned a
full-year profit.
Investors who ignored the 1990s hype
and focused solely on profitability
were amply rewarded. Those who
bought Amazon at the end of 2002 are
now up more than +280%, equivalent
to almost +28% annualized.
And Amazon is by no means an
isolated example. Back in 1995,
Yahoo! (Nasdaq: YHOO) was a
struggling dot-com startup with just
$1.4 million in annual revenues. At
that point in time, the vast
majority of Americans were still
unfamiliar with the Internet. Wall
Street had yet to catch on to the
company's long-term potential, and
not surprisingly, the stock
languished in the roughly $2-3 range
(on a split-adjusted basis)
throughout much of the mid-1990s.
Behind the scenes, however, Yahoo's
management team was working hard to
build the firm's presence in the
booming online market. And as the
firm's revenue base and the online
advertising industry continued to
grow in subsequent years, it
eventually moved toward
profitability. By the time 1998
rolled around, Yahoo had figured out
a way to earn steady profits. Not
surprisingly, investor interest in
the company exploded and the firm's
stock price followed suit, soaring
over $120 (split adjusted) at the
height of the dot-com craze in 2000.
More recently, Research In Motion
(Nasdaq: RIMM) finally turned a
profit in 2004 after three years of
losses. If you had bought the stock
on the day it announced its annual
profit, you would now be up close to
+700%, equivalent to a near +60%
annualized gain.
Experienced investors won't find it
hard to believe that this phenomenon
is common. Wall Street has a
tendency to ignore stocks that are
losing money. At the same time, it's
not usual for a young company with a
limited business history to show a
loss in its first few years of
operations.
After all, young firms must spend
big on advertising to establish
their brands. And these firms often
have to purchase equipment and
buildings to run their business --
all these up-front costs cut into
profitability in their early years
of operation.
But companies that lose money aren't
necessarily bad investments. Often,
once these firms establish their
business the earnings start flowing.
And earnings growth invariably
attracts investors, sending the
stock sharply higher.
With these points in mind,
Market Advisor editor Paul
Tracy and his staff went hunting for
firms that are just turning the
corner to profitability --
generating real earnings after years
of losses. They found eight stocks
that made it through their rigorous
screen and profiled their two
favorites out of the bunch.
To learn the name of these
securities, and to view the
Market Advisor's "Beat the
S&P" Portfolio -- which has
outperformed the S&P 500 for five
consecutive years -- we invite you
to try a no-risk subscription. To
learn more, please
visit this link. |
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