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NFL football is the most popular sport in the U.S. by a wide margin. A recent Harris poll found that 35 percent of U.S. sports fans names NFL football as their favorite sport, making it more than twice as popular as any other sport.
For sports fans, it may seem much easier to understand what’s happening on the gridiron than what’s going down on Wall Street, and identifying the most talented NFL players might seem like a breeze compared to picking the next major stock to break out on the big boards.
If this sounds like a familiar feeling to you, maybe it would help to start thinking about classifying stocks the same way sports fans classify players.
Blue chips are the biggest names in the business or sports world. Blue chips have a long track record of leadership, have strong brands and outperform their peers over time. In the NFL, the list of blue chip players includes names like Peyton Manning, Adrian Peterson and Calvin Johnson.
If you’re an NFL fan looking for the Megatron of Wall Street, you should be looking for stocks like Nike Inc (NYSE: NKE), Visa Inc (NYSE: V) and the world’s largest public company, Apple Inc (NYSE: AAPL). Sure, these companies may have bad quarters from time to time, but over the past decade each of the stocks has delivered returns that are more than six times greater than the S&P 500.
Sports fans love to get excited about young players with the talent to produce huge upside if they ever reach their full potential. NFL fans have heard the buzz surrounding young players like Le’Veon Bell, Odell Beckham Jr. and Marcus Mariota, and certainly all of these players have the potential to end up in the Hall of Fame if they live up to their potential.
Wall Street also has high hopes for a number of stocks that have major disruptive potential but haven’t quite demonstrated it consistently at this point in the game. Companies like Amazon.com Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX) and Tesla Motors Inc (NASDAQ: TSLA) all have a long way to go before they are generating profits that come anywhere near their current valuations. Tesla has yet to become profitable at all, and Amazon and Netflix each currently trade at PE ratios of above 400. However, there’s no doubt that all three companies have very high ceilings if they execute their long-term business plans effectively.
Finally, true sports fans know the names of players that are rarely flashy and rarely in the headlines, but deliver solid, reliable results. These players might not make the All-Pro team, but you can count on them to deliver consistent results year-after-year. In the NFL, players like Matt Forte, Alex Smith and Anquan Boldin fall into this category.
On Wall Street, these types of stocks are typically low-volatility stocks that pay a generous dividend. Dividend stocks, much like the gamers mentioned above, deliver no matter what the market conditions may be. Stocks like Exxon Mobil Corporation (NYSE: XOM), AT&T Inc (NYSE: T) and Procter & Gamble Co (NYSE: PG) all fall into this category. Each of these stocks has a dividend yield of 3.3 or higher, a beta of less than 1.0 and has delivered solid, positive performance over the past decade.
Not everyone has the mind of a top stock market analyst. But for NFL fans, managing your stock portfolio like a football coach manages a roster could be the key to developing a winning and profitable game-plan. The first step in this process is recognizing what each stock brings to the table and using this information to determine strategy, risk and expectations.
Disclosure: the author holds no position in the stocks mentioned.
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