Everybody loves a winner but not everybody knows how to spot one. Though past results are no guarantee of future performance, the best-performing companies are worth examining because they've produced solid returns whilst swimming against powerful currents.

Last year was marked by uncertainties, manifesting in market volatility as economic commotion put investors on edge. During the year, the market had to absorb the effects of the Arab upheaval, the Japanese earthquake in March, a continued weak US real estate market, a downgrade of the US' credit rating in August, massive flooding in Thailand that hurt technology manufacturers and moreover, ongoing worries about how and when Europe might solve its debt crisis.

Consequently, the Nasdaq Composite Index ended the year with a decline of 1.8 per cent and the Standard & Poor's 500 Index was flat. On the other hand, the Dow Jones Industrial Average — a closely watched benchmark Index comprising thirty of the largest companies in the US — ended the year with a 5.5 per cent gain. While this performance was below average historical returns, it is commendable when compared with the performance of stocks globally, which declined 5.7 per cent (according to the MSCI World Index).

Certainly there are some instances in which investors can benefit from volatile markets, however the roller coaster of 2011 has shown that investing in fundamentally sound companies is essential to mitigating overall portfolio risk. Choosing larger cap companies with track records of growth and solid prospects is key as the stocks of such companies are less likely to be hit as hard, especially those that are diversified in both their product offerings and their global coverage. Notably, a handful of these companies vastly outperformed the market last year, with some even achieving all time highs.

From strong emerging market exposure to a leading brand among quick-service restaurants, McDonald's Corp has unsurprisingly outperformed the market. The world's biggest restaurant chain, with franchises in over 100 countries around the world, was the best-performing stock in the Dow in 2011. The stock, which has a dividend yield of 2.77 per cent, climbed 31 per cent to US$100.33 as the company efficiently endured the weak economic environment and continued to focus on mitigating commodity price pressures.

McDonald's is a particularly well-managed company that has displayed impressive growth, especially for a large cap company. For Q04 2011, its Net Income climbed 11 per cent to US$1.38 billion, surpassing analyst's estimates as Revenue climbed 9.8 per cent to US$6.82 billion. The Company continues to strengthen its McCafe line-up, which has become its growth-engine. Focused on hot beverages internationally, it has identified a number of markets to test or add Real Fruit Smoothies and Frappes over the next few years, such as Australia. McDonald's maintains the leading market position in virtually every country in which it operates. Furthermore, global expansion opportunities still exist and McDonald's has the legroom to take advantage of them.

In spite of the ongoing foreclosure crisis that's keeping housing prices low and homeowners insolvent, the Home Depot, Inc advanced 19.91 per cent to end 2011 at US$42.04. The world's largest home improvement retailer reported an 18 per cent increase in Q03 2011 Earnings per Share (EPS) year-over-year on a 4.2 per cent increase in same-store sales. The company also continues to generate strong free cash flow, which it has been using to return value to shareholders through stock buybacks and dividend hikes.

Through the first nine months of 2011, the company spent over US$3 billion buying back its stock and intends to complete another US$6.8 billion of share repurchases by the end of fiscal 2014. Management also raised the quarterly dividend by 16 per cent late in 2011 (currently yields 2.58 per cent) and the targeted dividend payout ratio to 50 per cent from 40 per cent. A combination of a recovery in consumer spending in the US, operating leverage and share repurchases is anticipated to drive double-digit growth in Home Depot's EPS over the next few years.

International Business Machines Corp (IBM), which gained 25.29 per cent to US$183.88 in 2011, recently posted solid fourth quarter results. The world's biggest computer-services provider reported EPS of US$4.71, up 10.8 per cent year-over-year and representing double-digit growth in 18 of the last 20 quarters. The upside was driven by continued strength across its growth markets as its key initiatives maintained momentum.

Although software continued to expand strongly, sluggish growth in the services segment and a decline in hardware indicate that macroeconomic concerns may continue to limit IBM's growth in the first half of 2012. However, the company remains well positioned for long-term growth based on its four key growth initiatives: smarter planet, growth markets, business analytics and cloud computing, which are expected to deliver at least US$50 billion in revenues by fiscal 2015. IBM's strong product pipeline, expansion into emerging markets and continuous acquisitions are expected to help it to achieve this target going forward.

Among the top performing stocks in 2011 were also Apple Inc (up 25.56 per cent to US$405.00) and Pfizer Inc (up 23.59 per cent to US$21.64). Pfizer, the world's largest pharmaceutical Company, posted Q03 2011 Net Income of US$3.74 billion versus US$866 million a year earlier. Revenue climbed 7 per cent to US$17.19 billion, well above analyst expectations. Pfizer has a strong pipeline that should help to offset patent expirations in 2012 and offer revenue growth thereafter with a number of potential new products. Furthermore, the company has a dynamic management team that has shown its commitment to delivering value to shareholders. Cash-rich Pfizer recently hiked its dividend by 10 per cent (currently yields an attractive 4.2 per cent) and announced a new US$10B share repurchase programme.

Though not a Dow component as those previously highlighted, Apple is a member of the NASDAQ-100 Index, which includes 100 of the largest domestic and international non-financial securities listed on the Nasdaq Stock Market based on market capitalisation. Having been on the brink of bankruptcy fifteen years ago, Apple has now topped the list of most applauded companies for four consecutive years and is no stranger to the outperform lists of analysts following multiple record earnings. The company, which has already made its mark in many markets worldwide through pioneering products, is now seeking to grow its reputation as a premium brand in a market more than four times the size of the US - China. Apple, now far from bankruptcy, with no debt on its books and over US$81 billion in cash and securities, has continuously displayed its innovation and its strong prospects make it one to include in your portfolio.

There are a number of opportunities for investors, especially those looking to achieve long-term growth. However, many of the above stocks are trading near all-time highs and as such investors should take advantage of any pullbacks to pick up these winners. While innovative smaller firms may offer greater growth potential, they carry higher risk and in times of volatility, stability is essential for overall portfolio performance over time. Always remember to look at the bigger picture; seek opportunities to take advantage of these bulls that are expected to continue raging as you build your solid and diversified portfolio.

Deirdre Witter is an Investment Analyst at Stocks & Securities Ltd. You may contact her at dwitter@sslinvest.com.

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