Why Number Two in an Industry Can Be a Better Stock: Second-Biggest Isn’t Always Second-Best
It’s tough to stay top dog forever. That’s one reason why SmartMoney Magazine, in its swan song, says it’s a good idea to buy number two, meaning the company that’s runner-up in its industry. These companies tend to be cheaper, grow more, and they’re nimble, goes the argument.
In fact, when we look at the charts of some of the second-fiddle companies mentioned in the story, we find they are not necessarily cheaper -- at least, not anymore. In a lot of cases they’re more expensive, but they may be worth the price anyway.
… but has higher return on invested capital.
…but you’ll get far better ROIC.
… but it has better operating margins.
Moral of the story: Don’t count out number two.