I have been writing about stocks here since last August but have never really ironed out exactly what it is I look for in great stocks. In the next two articles I will outline what I personally think makes a great stock. Of course entire volumes of books have been written on the subject, so here is a seriously abridged version. I will list three non-financial things today and three financial things tomorrow on the subject.
Must Haves
First of all, I think a great stock should have some sort of competitive advantage, which is also known as an economic moat. I know a lot of the speculative stocks I write about lack this, but most of the blue chippers have it. Examples of competitive advantages include economies of scale, pricing power, and low-cost advantages.
A similar concept to competitive advantage is a high barrier to entry. Companies that enjoy high barriers to entry insulate firms from new competitors which is the main cause of pricing pressures and declining market shares. For example, Boeing (BA) is in a duopoly with Airbus and there doesn’t figure to be new entrants anytime soon. I can’t just open up a corner aerospace company if I wanted to. As long as industry demand holds up, Boeing should do well.
Great management teams are essential to great stocks. After all, these are the people that are running the daily operations of the firm and make all of the important decisions. One name comes to my mind when I think of this trait and that is Apple (AAPL). Here is a company that actually creates new markets with the products they make and they have the foresight to stay on top once they get there.
Several of their recent products over the years have transformed entire industries and given them first-mover advantages. A great example is the Ipad, which has kick-started the tablet PC market. Apple shareholders should have confidence in their management team as it has delivered time and time again. Management has proven that it can sense changes in consumer preferences at every turn.
What I Look For In a Stock – Part I is an article from: 
