Large profit margins are just the sort of thing business chiefs work to secure, so it seems sensible for stock investors to look for outsized margins when shopping for new shares. Buy "best-of-breed" isn't that what they say?

That logic can lead to poor long-term performance, however. The problem is that margins tend to eventually revert to industry averages. The most successful companies attract a swarm of new competitors, while struggling companies, if they don't fold, are usually forced to improve. As for the best-of-breed, see my column in the September issue of SmartMoney Magazine ("When the Top Dog Isn't Tops") for details on how industry-leading firms usually make for lousy stocks.

Better to search for companies with sub-par but improving margins. The companies below lag behind peers based on operating margins, but they have improved over the past year and are now ahead of their own five-year averages. (I used operating margins because the alternatives include too little or too much. Gross margins judge profitability after only manufacturing costs, not corporate expenses. Net margins factor in everything including financing decisions that have little to do with recent operations.)

Avery Dennison

Operating margin, past 4 quarters: 4.6%
Industry average (packaging and containers), past 4 quarters: 9.1%
Company average, past 5 years: 2.2%

Avery Dennison, whose founder in 1935 manufactured the world's first self-adhesive label, still makes office products. However, most of its sales today come from labeling grocery products, clothing, prescription pill bottles and much more. The company s labeling expertise also comes in handy for automotive window tints, city bus billboards, street signs and so on. Last quarter, Avery topped earnings estimates and raised its guidance, and management noted in a press release that operating margins now exceed pre-recession levels. The stock sells for about 12 times earnings and carries a 2.4% dividend yield.

Starbucks

Operating margin, past 4 quarters: 11.9%
Industry average (restaurants), past 4 quarters: 21.2%
Company average, past 5 years: 8.7%

Starbucks shares peaked at nearly $40 apiece in 2006, plunged below $9 last year and recently fetched about $25. The fall from grace was widely attributed to overexpansion and a related failure to find new ways to increase sales without opening shops. The recovery has been fueled by just the opposite. Starbucks has shuttered about 500 company-owned stores in the U.S. since 2008, while expanding overseas. Although early experiments with breakfast sandwiches flopped, the company has been successful pushing its Via brand of instant coffee through its stores and selling brewed coffee under its Seattle's Best brand through movie theaters, fast food restaurants and convenience shops. Sales and profits are growing nicely, and management is parting with gradually more cash in the form of dividends and stock repurchases.

PerkinElmer

Operating margin, past 4 quarters: 10.1%
Industry average (medical equipment), past 4 quarters: 18.0%
Company average, past 5 years: 8.8%

Two years ago, PerkinElmer, a maker of scientific equipment, reorganized to increase its focus on health-care and environmental products (and accordingly, changed its motto from "precisely" to "for the better"). The move was meant to align the company with a few long-term trends, including increased global availability of (and spending on) health care, a scarcity of clean drinking water and growing efforts to monitor and reduce pollution. Last year, sales dipped to $1.8 billion from $2.0 billion on a sharp pullback in equipment purchases by laboratories, hospitals and manufacturers. Management responded by reducing excess manufacturing capacity and announced a goal of reaching $3 billion in yearly sales by 2014, partly through acquisitions. The company is making progress. Last quarter, sales increased 14% and profits more than doubled.