Sell These 3 Stocks and You'll Kiss Retirement Goodbye
Mar 16th 2012 2:48PM
Updated Mar 16th 2012 2:56PM
Do you know how much you'll need for retirement? Everyone's answer is different, so let's try a hypothetical situation.
Let's say you're 50 years old, earning $80,000 per year. You plan on retiring at 68, and want to save enough to live on the same income until you're 90 -- without completely relying on Social Security.
How much would you need to have saved when you retire? Go ahead, write it down. I'll wait here.
The correct answer? $2.2 million.
Kudos if you're on track. But according to recent surveys, most people aren't. In fact, two-thirds of American workers have saved less than $50,000 for retirement.
Thousands are in for a rude awakening. Panicking is not the answer -- making smart money moves now is.
Unfortunately, there's one huge mistake that both amateur investors and professionals routinely make that robs them of a comfortable retirement: selling their winning investments too soon. Read below, and I'll explain why this is such a big mistake, and tell you about three companies that you'd be crazy to sell right now.
The desire to "lock in" gains
Many a seasoned investor will tell you that until you've actually sold a stock, any gains or losses you've made are illusory; they don't count until you've cashed out. Given that fact, it's commonplace to sell stocks that have gone on a great run to lock in those gains.
That's partially what our own Todd Wenning was thinking when he told investors that Apple (NAS: AAPL) was worth selling back in March of 2010 to free up cash for other purchases. His reasoning: "Apple doesn't have the high-growth potential it used to. After all, it is a $190 billion company, and a double in price from here would make it ... larger than ExxonMobil. Yes, it's possible, but it seems improbable -- at least anytime soon."
Well, last quarter Apple grew earnings per share by 115%, and in less than two years' time, Apple has become the world's most valuable company. Shareholders who held on have seen their stake rise by over 160%--far outpacing the S&P 500.
I don't mean to pick on Todd, who's an excellent investor. However, when we're willing to part ways with companies that we acknowledge as being ahead of the curve on innovation, and best-in-class within their industries, we're also deciding to part ways with the chance to earn the kind of returns that can provide a very comfortable retirement.
Here are three other companies that I think fit that mold.
Don't bet against baby-boomers wanting to stay active
An estimated 10,000 baby boomers will reach age 65 every day for the next 18 years in America. And these retirees are breaking the mold: among this vast population, the No. 2 reason for visiting the doctor (beyond the common cold) is to evaluate sports injuries.
The next generation of retirees is demanding to stay active, and that's why it doesn't make sense to sell shares of MAKO Surgical (NAS: MAKO) . The company has yet to turn a profit, but shares have risen over 190% in the past two years.
But don't let those numbers scare you; demand for MAKO's technology is just getting started. The company's RIO surgical system allows doctors to perform minimally invasive procedures on knees and hips. Through the first nine months of 2011, over 4,600 procedures were performed using RIO. Though that's a 100% increase over the same time last year, the number can only go up as 10,000 more boomers retire each day.
Don't bet against natural gas
Westport Innovations (NAS: WPRT) , the company designing automobile engines that can run on natural gas, has seen its shares rise over 200% in the past two years. Like MAKO, the company has yet to make a profit.
Westport's first major venture is in providing natural gas engines to long-haul truckers. If all goes well -- and with the build-out of America's natural gas highway and a number of recent order announcements, it looks like it will -- a move to commercial automobiles and locomotives would be next. In 2011, Westport shipped just 5,739 units. If the conversion to natural gas continues, that number could explode exponentially over the next 10 years.
Don't bet against a connected China
Don't be scared into selling shares of Chinese search leader Baidu (NAS: BIDU) . Though the company's shares have surged over 170% in the past two years -- and are trading for 47 times earnings -- the company still has lots of room to grow.
Unlike the United States, where about 77% of residents have readily available access to the Internet, China's base of users still has a long way to go. According to recent studies, the Internet penetration rate in the country is still at just 37.7%.
Those numbers are almost assured to grow, and the Chinese government has pledged to make the minimum wage expand by 13% per year until 2015. As these two forces combine there will be a lot more disposable income in the country. That means advertisers will be willing to pay Baidu even more for ad space. With revenue growing by 83% last quarter, and the company announcing that it'll be taking its service beyond China's borders, this growth story is just getting started.
Along with Apple, MAKO, Westport, and Baidu are all active recommendations of Motley Fool Co-Founder David Gardner, who selects stocks for our Stock Advisor and Rule Breakers services.
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At the time this article was published Fool contributor Brian Stoffel can't wait to witness a supernova. He owns shares of Westport Innovations, Baidu, MAKO Surgical and Apple. You can follow him on Twitter, where he goes by TMFStoffel.The Motley Fool owns shares of MAKO Surgical and Apple. Motley Fool newsletter services have recommended buying shares of Westport Innovations, Baidu, MAKO Surgical, ExxonMobil, and Apple, as well as creating a bull call spread position in Apple. 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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