While I believe that stock picking is less important these days than in the past since you can simply trade the broad market up and down, when looking at long term returns, individual companies and their fundamentals actually do matter.  So, what fundamentals should one look for when picking sound investments for the coming decade?  Let’s look at a few…

Balance Sheet

You should definitely look at companies with sound balance sheets.  While some debt is acceptable, companies burdened with insane debt (i.e. General Electric (GE)) should probably be avoided as long term investments.  Tech companies like Apple Inc (AAPL) have massive war chests of cash provided bullet proof balance sheets.

Management

Does the management of the company warrant ownership of the company?  Do the management folks have the shareholders in mind?  Do they have a record of increasing dividends in order to benefit shareholders?  How did they execute during the recession?  Did they see the recession coming at all?

Expanding Markets

Is the market for the company’s products or services growing or contracting?  If the market is contracting, I wouldn’t invest in the company for the long term.  For example, retail, home builders and real estate in the U.S. is definitely NOT an expanding market.  An interesting market to examine is global cigarette sales.  Philip Morris Int’l (PM) is one of my favorite stocks.  Many of their markets such as Europe are shrinking but they also have expanding markets in some of the emerging markets.  Getting back to Apple Inc (AAPL), they have a growing market with the iPhone and continued growth of Mac sales.

China & the rest of Asia are major markets that most multinational companies are looking to expand into.  What does the program plan to do to tap into the China market?

Profit Margins

How do the profit margins look?  Are they expanding or are they potentially under pressure to do supply costs?  Higher commodity prices such as oil have an impact on many companies.  If oil will continue to go higher over the coming years, how will that impact the company?

Apple Inc (AAPL)

Apple seems to fit the right mold for a fundamentally sound investment.  There are two issues not mentioned in this article that I have with buying AAPL right now.  One, the stock is very high.  It has had an enormous run in a short time period; therefore, I would not buy now.  If it goes lower, consider pulling the trigger.  Second, there is no dividend on the stock despite the massive hoard of cash they are sitting on.  I would expect the company to potentially begin a dividend program unless they have their eye on a massive acquisition in the future.

Remember, we’re talking about the next decade.  You don’t have to rush into your decade long investments.  Keep your powder dry and wait for the right opportunity.

For additioanl thoughts on the next decade and major trends to guide potential investments, check out the Major Trends Page.