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Tickers in this Article: PEP, COLM, WHR, KO, NKE,
Legendary Fidelity mutual fund manager Peter Lynch believed individual investors should buy stocks in companies they understood. His rationale was simple, "If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them." It was simply a matter of keeping your eyes open to the opportunities around you. (For background reading, check out The Greatest Investors: Peter Lynch.)

Go With What You Know
Each of us uses products and services on a daily basis with little thought given to their investment potential. That's perfectly normal - we are usually too busy enjoying them to put two-and-two together.

When we step back, however, we realize that we're far more qualified to make educated investment decisions about products we actually use than ones we don't. That's just common sense, and when applied to thorough stock research, provides the foundation for a sound and successful portfolio.

By researching companies whose products and services you use on a daily basis and understanding their financial situation, you'll be able to determine if they meet your criteria for investment. It takes a little legwork, but it's well worth it. (You've got the market research down, to learn the financial side, check out Due Diligence In 10 Easy Steps.)

Three Peter Picks
Thinking like Peter Lynch for a moment then, here are three companies you are likely familiar with that you might want to follow up on:

PepsiCo (NYSE:PEP)
This global consumer-goods powerhouse produced sales of approximately $35 billion in 2006 with 18 brands achieving annual revenues greater than $200 million. Some of the brands I use every day include Quaker Oats hot cereal, Tropicana orange tangerine juice and Lay's potato chips. EBITDA margins for the latest twelve months ended September 2007 are 22.3%. Although not as strong as its biggest direct competitor, Coca Cola (NYSE:KO), PepsiCo is still an extremely profitable company operating in 200 markets around the world. With a market cap well over $100 billion, you're not likely to have a larger company in your portfolio.

Columbia Sportswear (Nasdaq:COLM)
We're in the heart of winter and in the north, a good coat is an absolute must if you want to stay warm. Personally, I've worn one of Columbia's jackets for years, and I swear by them. Columbia knows its market - outdoor apparel - and it knows it well. Why Nike (NYSE:NKE) hasn't already bought Columbia Sportswear is a complete mystery to me. The two companies' products rarely overlap and both headquarters are located in Portland, Oregon. Nike and its $16.3 billion in sales could buy Columbia (sales of $1.3 billion) with the petty cash set aside for Tiger's visits to the Northwest.

Whirlpool (NYSE:WHR)
In 2005, the company bought out Maytag, its closest rival, creating a home appliance dynamo. Its brands include Whirlpool, Maytag, KitchenAid, Jenn-Air and many others. In addition, it supplies Sears with appliances under the department store's own brand name, Kenmore. Many investors have no doubt owned or used an appliance under one of these brand names.

That's the everyday part of an investment in this company. However, a little bit of research to follow up on the everyday knowledge leads to the fact that a majority of the company's sales are to existing homeowners. In fact, only 18% of the company's revenue in the United States is derived from new home construction. This is an important fact given the current problems homebuilders are facing. Whirlpool's full-year 2007 earnings per share from continuing operations were $8.10, giving the stock a trailing P/E ratio of 11, which is 20% less than its five-year average. Should the stock price drop below $80 again, as it did in early January, I would say you are looking at a bargain.

The Bottom Line
The three stocks listed above are just a small sample of the companies that spring forth if you keep your eyes open the way Peter Lynch became famous for doing. We appear to be heading into a recession in 2008, but rather than putting your head in the sand and giving up, consider adopting an investment plan that takes advantage of your built-in knowledge as a consumer. There are opportunities all around us if we take the time to look.

To learn more about Peter Lynch and his investing strategies, read Pick Stocks Like Peter Lynch.

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