Five examples of how investing in what you know can make you a fortune
For this column we are going to channel Peter Lynch, who liked to invest in what he knew. Hang on, as we are going to get personal here, as we walk you through our past couple of weeks highlighting some “common sense” stock ideas that were just staring us in the face.
Apple Inc. (AAPL on Nasdaq)
I am not one of those tech geeks who needs to upgrade their smartphone every six months. My iPhone 6S was working just fine — until it wasn’t. The camera broke, the battery was fading, and when using Siri it developed a bad habit of freezing up. So, off to the Apple store I went last week. Since I am (a) old and (b) had a big-screen phone already, I opted for the iPhone 11 Pro Max. Throwing in the Apple Care warranty, and yeah, I just had to buy those cool new Air Pod Pro headphones, I walked out of the store with a $2,200 bill, including taxes. My first car cost half that! And of course, even though it was a Tuesday morning, the Apple store was absolutely packed with customers. It’s no wonder that Apple stock is up 67 per cent this year (it also announced it was increasing iPhone 11 production after good reviews and initial strong sales). The largest company in the world (about to move to number two though with the Aramco IPO), it is arguably cheap at 20X earnings. It pays a 1.17 per cent dividend, which was raised in April. It has $206 billion in cash, and generated $59 billion in free cash flow in the last 12 months. I do own Apple stock, but walking out of the store I wondered why I don’t own more.
Starbucks Corp. (SBUX on Nasdaq)
Being a caffeine junkie, I met a friend for coffee earlier in the week. Buying a couple of lattes and a scone and we dropped close to $20 in a 30-minute meeting. Like at Apple, we had to wait our turn to give them our money. Upon reflection, of course, we reminded ourselves that Starbucks is selling an addictive drug — caffeine — and people are lining up to buy it. We had a flashback to 2008, when the financial world was ending and I was standing in line to give the company $3 for a venti coffee which probably cost them $0.45 to make, if that. The stock was less than $4 at the time, so you could buy a share in the company for less than the price of one of their fancier drinks. Today, it is $84, up 29 per cent this year. It pays a two per cent dividend, and trades at 27 times’ earnings. Addiction can be a profitable business.
The Walt Disney Company (DIS on NYSE)
This weekend, as you read this, I will be in Orlando, Florida with my daughter and one of her friends. They want to go to Universal Studios, but also to Disney World. I will pay $30 to park there, $327 for three tickets, probably $80 for lunch and $150 in souvenirs. Disney will end up with $587 of my money in about 10 hours or less. Oh, and of course these are U.S. dollars, so $781 Canadian. That’s only one day of the weekend. Disney shares are up 34 per cent this year, partially on the back of its new streaming service, but investors should not forget about the massive cash flow machine that its theme parks are. Disney is expected to have $82 billion in total sales next year. The stock, at $147, was $29 eight years ago. It pays a 1.2 per cent dividend so if owned it gives you at least a bit of money that can be used towards that $30 Mickey hat.
Visa (V on NYSE)
On Monday, I noticed a weird charge on my credit card statement, and so Visa cancelled my card and issued a new one. I will get it next week. But in the meantime, without my Visa, I am going absolutely bonkers. I have to (gasp) enter numbers on a pin card at the store, rather than just tapping. I have had trouble paying bills this week, as many companies still don’t take American Express, my back-up card. I have to actually carry around cash now, which I don’t think I’ve done for years. So, here I am breathlessly waiting for my new card to show up. Cash just makes no sense anymore, and Visa shares are up 38 per cent this year, trading at 29 times’ earnings with a 0.7 per cent dividend. The company has $14 billion in cash and had $12 billion in free cash flow in the last 12 months. It has bought back nearly a billion shares since 2010, boosting its per-share leverage. It is also, of course, a globally recognized brand. So, while I await my new card, I will do some more research on its stock.
Axon Enterprises Inc. (AAXN on Nasdaq)
Formerly Taser, the company name popped up this week when a tragedy occurred when a tasered man died in custody. I plugged in the stock symbol into Bloomberg, curious to see how much the stock declined on this horrible news. To my surprise, it was UP $3 a share. Looking back, on Nov. 8, the stock rose 24 per cent in one day after a solid earnings forecast. In the old days, a taser death would have crushed the stock, but the company has diversified its business, changed its name and reported very strong earnings growth. Oh, and it has $300 million in cash as well. The personal connection here is that I once worked at a company that owned more than 12 per cent of Axon’s stock, so I have always kept an eye on it. It’s up 64 per cent this year, and up 30-fold since 2008.
Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (http://www.5iresearch.ca).