Investing in Your Backyard: Peerless in Seattle

There are many good reasons for researching investment opportunities in a certain geographic area. I'm following in the footsteps of the American Idol auditions for a couple of weeks, and this time I need to find out whether the business in Seattle is any better than the musical talent.

The cringeworthy crooning on the show was surprising, given the wealth of musical history in this town. If Nirvana and Pearl Jam don't do it for you, perhaps you'd prefer Jimi Hendrix, Quincy Jones, or Kenny G. Sir Mix-a-Lot, anyone? But there's lots of other stuff to do, too. For major league sports, you have the SuperSonics, Seahawks, and Mariners; the iconic Space Needle is always good for a spectacular view; and the Emerald City has the largest ferry system in America.

Let's get to business, though. If you happen to live between Mount Rainier and Granite Falls, you already have a few advantages when it comes to evaluating the local market, such as access to the word on the street and local news sources like Seattle Post-Intelligencer, Northgate Journal, and KUOW-FM. There's also a high probability of being a customer or employee of these companies. And if you're not a local resident, you might still want to know whether the business setup matches the singing talent in the area -- a hot town could be chock-full of undiscovered treasures on their way to greatness.

Without further ado, here are the largest (by market cap) companies headquartered in metropolitan Seattle:

Company

Market Cap (billions)

CAPS Rating

Bull Ratio

Microsoft (Nasdaq: MSFT  )

$304.7

***

85%

Washington Mutual (NYSE: WM  )

$41.6

**

79%

Starbucks (Nasdaq: SBUX  )

$27.0

***

87%

Costco Wholesale (Nasdaq: COST  )

$25.7

*****

95%

Weyerhauser (NYSE: WY  )

$17.2

*

68%



The appearances of Microsoft and Starbucks on this list should surprise absolutely nobody. Washington Mutual and Costco are also well-known landmarks on the Western Washington business horizon. The relatively low ratings of these all-American companies might startle some, though. CAPS all-star mstone101 explains why Microsoft isn't so hot:

"Technology laggards. Software has always had holes in it big enough to drive a double-decker bus through and it still does. Software is overcomplicated, overladen by too many other Microsoft products (Office, mice) that it distracts from the core: get the OS right, then leave the rest to innovative application providers. Vista delays just prove the point."

Persuter disagrees, noting, "It is a virtual certainty that in two years, something like 80% of the personal computers in the world will have Microsoft Vista installed on them. $100-150 a pop times 80% of the computers in the world equals lots of cash."

The consensus on Washington Mutual appears to be a housing bubble problem, as SillyValley notes: "The aggressive mortgage products of the past few years will come due soon, and the results will send bank stocks lower. WaMu was one of the most aggressive, and will get burned the most." And the comments on Starbucks oscillate between admiration for its North American dominance and global plans, and fears of the specialty coffee market peaking in the way pet rocks and legwarmers did in the 1980s.

Clear-cut
If those companies have cloudy prospects, the picture clears up when we get to Costco and Weyerhauser. The warehouse retailer is nearly universally loved, and our coordinating online editor Hope Nelson-Pope (TMF Lucky11 in CAPS) sings its praises:

"I like the way Jim Sinegal runs Costco. I like how the company treats its employees. And I like the way it's branded itself into a more upscale Sam's Club -- warehouse style with a bit more class (at least in theory!). Costco, at least at present, is run with a balance of prudence and risk-taking that I think will serve it well."

The lumber and real estate specialist, on the other hand, gets love only from investors with a very, very long holding timeline. "Ride out the housing cycle," says wrciii, "while getting a 3.5% dividend yield. WY has paid down a lot of debt since 2002 and may be able to make bolt-on acquisitions at attractive prices." But the housing slowdown looks to hit hard against two of Seattle's biggest businesses.

Look out below!
Below the top five, there's great depth in the Seattle field, and our own analysts seem to have caught on already. Out of the 85 companies on my list (not a remarkable number compared to cities like Minneapolis/St. Paul or Philadelphia), 12 are active selections of at least one Motley Fool newsletter -- online jewelry store Blue Nile (Nasdaq: NILE  ) pulls off a double, with appearances in both Motley Fool Hidden Gems and Motley Fool Rule Breakers. That's an astounding 14% hit rate; I thought the Twin Cities were impressive for landing eight out of 120 tickers in our stable of services, and Austin's 4-for-34 hit rate surely couldn't be beat. But that's less than 12%.

So what brings all these quality companies to Seattle? The reasons are legion. It's a massive metropolitan area with a population of nearly 4 million, and it has the highest average education anywhere in the U.S. thanks to plenty of excellent schools. The 19th-century Klondike gold rush laid the groundwork for an excellent transportation infrastructure, and local government is actively inviting businesses with corporation-friendly zoning and tax rules. And the city is now promoting a "metronatural" lifestyle: Despite a rainy reputation and northerly latitude, the weather is generally quite nice, and Seattle sits amidst some amazing vistas (pun very much intended).

The Foolish bottom line
Unlike this year's American Idol hopefuls from Seattle, the city comes up aces in terms of business prospects. The local market has attracted everything from the really big (Microsoft) to the small but brilliant (Blue Nile or SonoSite (Nasdaq: SONO  ) ); from retailers to tech startups and offbeat soda spritzers. It's like Austin on steroids, albeit with the weirdness dialed down a few notches.

Do you agree? Disagree? Feel free to weigh in on the Seattle market -- or on any stocks at all, really -- by joining Motley Fool CAPS and blasting away with your ratings and commentary pitches. And if the Queen City of the Pacific Northwest isn't your 'hood, maybe we'll come around where you live the next time.

Costco and Starbucks are Motley Fool Stock Advisor selections, Microsoft is an Inside Value pick, Washington Mutual is an Income Investor recommendation, Sonosite is a Rule Breaker, and Blue Nile has the endorsement of both our Rule Breakers and Hidden Gems teams. Got all that? Grab a bag full of free trials to find out more -- it's free for 30 days, no strings attached.

Fool contributor Anders Bylund holds no position in any of the companies discussed here, but he's got an eye on a few of the opportunities in Seattle. You can check out Anders' holdings if you like. Foolish disclosure is always in tune.


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