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

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  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 >>
Trading Center