2 Innovative Companies to Own in 2012
Jan 12th 2012 12:07PM
Updated Jan 12th 2012 12:08PM
To be the best you have to be willing to fail. That's a saying the world's most innovative companies know well. However, being the best isn't always enough in today's commoditized world. Here's a look at one of last year's most innovative companies, and two others that have shown they can continually reinvent themselves for the future.
Companies that innovate their products, and also their business models, are among those most capable of sustaining success, and ultimately prove themselves winning long-term investments. Apple (NAS: AAPL) got it right in the late 1990s when it was forced to transform the company in order to maintain competitiveness in the PC business.
The Mac maker launched the revolutionary iPod and its online music store, iTunes, which turned downloading music into a profitable business. Apple changed the game again when it later broke into the mobile phone industry with its popular iPhone devices.
The following two stocks are taking a page from Apple's book and showing they're here to stay. To be clear, these are companies finding new ways to keep their core businesses profitable. Using new technologies and smart acquisitions, these companies are better able to outfox competitors.
Total Revenue (TTM)
|Amazon (NAS: AMZN)||$43.59 billion|
|Google (NAS: GOOG)||$35.76 billion|
Source: Yahoo! Finance. TTM = trailing 12 months.
The magic of Amazon
First up, e-commerce champ and longtime Stock Advisor recommendation Amazon.com. Over the years, Amazon has gone from being an online bookseller to the No. 1 online retailer.
Today, the company's online marketplace sells much more than books. As my Foolish colleague Anders Bylund pointed out, shares of Amazon have returned more than 2,200% to investors who bought the stock in 2001. Pile on a forward price-to-earnings of nearly 92 and the stock looks wildly overpriced. However, I will argue that Amazon's a winning long-term bet for investors.
Why so confident?
The world's biggest online retailer has competitive pricing going for it. Across the board, Amazon's cut-price products and services continue to attract new customers.
The company is willing to take a short-term loss in order to provide long-term gains, as was the case with the retailer's newest e-reader, the Kindle Fire. Research firm IHS iSuppli estimates that Amazon spends roughly $201.70 on each of its Fire devices, while the company sells them for $199 a pop.
Not to worry, the advantage for Amazon is in turning its new Kindle customers on to Amazon.com's digital shopping hub of music, books, videos, and other goods -- prompting repeat business. The business model of repeat business through the iPod/iTunes marriage has worked well for Apple, whose App Store enjoyed a record-breaking holiday, with 1.2 billion apps downloaded during the week of Christmas.
Additionally, the company's approach to innovation is shaking things up for traditional bricks-and-mortar retailers. Amazon's price-check app lets customers scan product barcodes on their mobile devices and instantly compare prices with Amazon -- technology that threatens the very livelihood of local businesses.
From your website to your wallet, Google's positioning its services as staples of your life. The online search giant stepped outside the boundaries of Web-based advertising and into mobile technology when it introduced its Android operating system. Phones running on Android have surpassed 700,000 activations a day -- placing Google firmly in the middle of the booming mobile Internet business.
Surprisingly, many investors seem to dismiss Google's potential for growth and think the P/E of 22 may not be justified. This is a company that's crafting a competitive moat built from detailed information about its customers. Knowing who its customers are, where they are, and what they're buying will certainly help Google create profitable opportunities for not only years, but generations.
Another upside is Google's play for a piece of the mobile payments market. As a whole, mobile payment sales in the U.S. are expected to increase at a 68% compounded annualized growth rate over the next five years. The tech titan's early entrance with its Google Wallet service should give it an added advantage as competition in the market builds.
Other winners of this 68% annualized growth rate could be Visa (NYS: V) and eBay (NAS: EBAY) . How well Visa can entrench itself with mobile devices will be key to its success going forward. It's already experimenting with near-field communication devices you can attach to your cell phone, and eBay's PayPal division has seen tremendous growth lately. In fact, they're even leveling their sights on Groupon in the daily deal space with ultra-targeted deals for users.
Great investments don't always come at fire-sale prices. These stocks aren't cheap, but they also aren't headed for a fall -- quite the opposite. Amazon and Google continue to push for creative change within their own businesses. It's this level of innovation that will carry a company into the next decade. I have no doubt both of these stocks will be around in 2022. But until then, click here to get The Motley Fool's top stock pick for 2012 -- it's free!
At the time this article was published Fool contributor Tamara Rutter owns shares of Apple and Amazon. Follow her on Twitter, where she uses the handle @Tamara Rutter. The Motley Fool owns shares of Amazon.com and Google. Motley Fool newsletter services have recommended buying shares of Corning, Amazon.com, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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