Locate the Competition

Before you can buy the best company in an industry, you must determine which companies represent the competition in that industry.

To find the best company in an industry, you must compare competitors within that industry to find the strongest contenders, and then evaluate those contenders to reduce the field, eventually to the one with the best combination of growth, quality, and level of risk for your portfolio. Like other aspects of investing, finding competitors isn’t as easy as you might think. Most financial data providers and web sites categorize companies by sector and industry—but they typically define their own set of sectors and industries, and they might classify companies differently even if the sectors and industries are a close match. Sectors represent broader categories, such as healthcare, whereas industries are more specific, such as biotechnology, healthcare facilities, major drugs, and medical equipment and supplies. There are plenty of web sites that provide sector and industry classifications, but some have features that simplify the search for competition. After you find a web site that you like, use that same site every time, so that your classifications are consistent.

When you want to obtain industry information along with competing companies, Yahoo! Finance (http://finance.yahoo.com) and Reuters Investor (http://investor.reuters.com) are both good choices. To find competition and industry information at Yahoo! Finance, type a ticker ...

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