Markets don't go up forever. The 12% advance in the S&P 500 during the first quarter made it seem like that was the case, but reality is kicking in so far in the second quarter. What's certain about the stock market is that the future is uncertain.

See: 4 Tips For Buying Stocks in a Recession.

What to Look For
Despite what's happening with stocks, the U.S. economy in 2012 is heading in the right direction. Investors now need to focus on not overpaying simply so to be invested in the stock market. Future growth of a business dictates what one should pay today for a business. It's often more prudent to pay more for a growing business than to pay less for zero growth. The margin of safety is often in the future earnings power of a company.

See: 5 Must-Have Metrics For Value Investors.

A lot of growth is coming from abroad and that's the case with DIRECTV (Nasdaq:DTV), the leading satellite cable provider. In many parts of the world, like Latin America, satellite cable is necessary as opposed to traditional cable towers. DIRECTV is also leading the way in terms of providing specific content like the NFL channel geared at attracting loyal sports fans. Shares trade for $50 and less than 10 times next year's earnings estimate.

See: Choose Your Own Asset Allocation Adventure.

Low Risk Growth
Looking ahead, investors should strive to keep things as simple as possible. The question to ask is what works in this environment? Businesses like CVS Caremark (NYSE:CVS) and Walgreens (NYSE:WAG) provide and answer to this question. The U.S. population is getting older and these two chains have become the new neighborhood drugstores. Most Americans live closer to a CVS or Walgreens than they do Wal-Mart (NYSE:WMT), and the prices are just as competitive. Considering Wal-Mart is a juggernaut with over $400 billion in annual sales and CVS and Walgreen each generate less than 25% of that, growth becomes much easier working off a smaller base. Over the next few years, they should do well and so ultimately should the share price.

The Bottom Line
Most investing mistakes happen when investors try to over-complicate things. A business creates value by growing profits and cash flows. Growth is not an easy thing to accomplish consistently, which is why many investors can't generate quality consistent investment returns. Sticking to a simple philosophy can go a long way in today's market environment.

See: How To Choose the Best Stock Valuation Method.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  2. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  3. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  4. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  5. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  6. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  7. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  8. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  9. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  10. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!