5 Companies We're Thankful for ... and 2 We're Leaving Out

Peter Lynch once made famous the dictum to "buy what you know." That idea was reinforced in an odd, unintended way this past weekend.

My wife and I were visiting with friends who don't closely follow the stock market. In between taking turns watching after their newborn daughter, I asked the couple: "If you were to list five companies you are thankful for, which ones would they be, and why?"

Their answers revealed a lot, but before I get to the lessons that these picks illustrate, here's what my friends from rural Iowa had to say.

Lots to be thankful for...

Company

Why Thankful?

Apple (Nasdaq: AAPL  ) Said the couple: "We especially love their iPhoto's cloud possibilities, as it allows us access to pictures of our daughter without having to carry them around."
Coach (NYSE: COH  ) Said the wife: "I'm pretty sure my husband would just get me a new vacuum cleaner every Christmas if it weren't for Coach."
Amazon.com (Nasdaq: AMZN  ) On their new baby: "We have a revolving order of 100 diapers that automatically get dropped off at our front door every few weeks. I don't even want to think about life without that." [Me neither.]
Kimberly-Clark (NYSE: KMB  ) "They provide the diapers that Amazon delivers to us."
Google (Nasdaq: GOOG  ) Because they live in rural Iowa: "We have lots of people who have come to visit us recently. Without Google maps, we aren't sure whether or not they would've found our place, which is on the edge of our small town."


Oh, and it's worth noting that the couple also singled out two companies that have drawn their ire over the past 12 months:

  • Netflix (Nasdaq: NFLX  ) : "We canceled our subscription based on principle. I felt like we were being taken for a ride."
  • Green Mountain Coffee Roasters (Nasdaq: GMCR  ) : "Our Keurig machine has broken three times in the past year. The company has replaced it each time, which we appreciate, but it's starting to be a pain to go through the process."

A victory for "buy what you know"?
We here at the Fool are big proponents of taking a long-term view with investing. For me, that means making investments with a time horizon of at least three years -- and hopefully much, much longer.

Using this as a measuring stick, I went back to see how the five companies my friends identified would have done over the past three years. Keep in mind that over this same time period, the S&P 500 returned 49%.

Company

3-Year Return

Apple 297%
Coach 270%
Amazon 345%
Kimberly-Clark 39%
Google 126%
   
Average 215%

Source: Fool.com, includes dividend reinvestment.

Wow, those are impressive numbers. Our friends' hypothetical portfolio would have crushed the market by an astounding 166 percentage points in just three years. So does that mean you should go out and buy the stocks of your favorite companies right now?

Not by a long shot. It's one thing for my friends to tell me what they appreciate, and then look three years back. It's quite another to say, "I believe that three years from now, I'll really appreciate these companies and what they provide." Sure, you could be right, but you could just as easily be wrong.

Don't forget the two unlikeables
I want to move for a quick second to our two out-of-favor companies. Though Netflix and Green Mountain have returned 235% and 622% over the past three years, respectively, things have not been going well for the companies as of late.

In fact, if you'd invested equal parts in these two companies midway through 2011, you'd be sitting on a total loss of 57% of your money. Of course, the five months between now and then aren't even close to our three-year timeline, but the overall circumstances do reveal a telling lesson.

Losing customer loyalty is not to be taken lightly!
Netflix started running into trouble with its price hike, and the slide continued with its odd journey into Qwikster-land. Green Mountain, on the other hand, came under fire when investor David Einhorn called the company out with accusations that its earnings are "too good to be true." Why would that be? Well, it could be that its K-Cup patents are running out, or it could be that it is simply losing traction with customers -- like my friends in Iowa.

Either way, the message is crystal clear: When it comes to consumer-facing companies, customer service, brand loyalty, and timely communication are of the utmost importance.

Motley Fool CEO Tom Gardner summed it up when voicing his disappointment with Netflix's PR disasters this year:

Even if this is the right business strategy, the customer communications have been just terrible. The latest one read like a business communication to Netflix subscribers. They don't, and shouldn't be expected to, care about Netflix's business. They just want movies, a great variety of them, inexpensively and conveniently.

These are problems that the five stocks we're thankful for have avoided thus far, and they've been prospering in part because they've avoided such pitfalls.

What's next?
Not every stock has an obvious consumer angle. But for those that do, it's vitally important for them to provide valuable, high-quality products and services -- and even more so, to communicate effectively with their customers. The stocks that succeed on that score should reward their shareholders.

Since we're already on the subject of most-loved stocks, I thought I'd offer you some reading for your (hopefully) long weekend. We've already established that Apple and Google have been performing quite well recently. Along that vein, our analysts have put together a special free report on hidden ways you can profit from their success.

The report -- 3 Hidden Winners of the iPhone, iPad, and Android Revolution -- details three lesser-known companies that will continue to profit as the world switches to mobile communication. The report is yours today, absolutely free!

Fool contributor Brian Stoffel encourages you to share the companies you're most thankful for below. He owns shares of Apple, Amazon, Google, Green Mountain, and Netflix. You can follow him on Twitter at @TMFStoffel.

The Motley Fool owns shares of Coach, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Amazon.com, Google, Coach, Kimberly-Clark, Green Mountain Coffee Roasters, Apple, and Netflix, as well as creating a bull call spread position in Apple and a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 23, 2011, at 2:38 PM, teeba11 wrote:

    Wow, i am on my 4th Keurig brewer in the past 2 years. They also replaced each one thankfully. Guess it is not just me.

    Of course, i love the convenience so much i bought a mini Keurig brewer as a backup for the next time the big one fails.

  • Report this Comment On November 23, 2011, at 2:54 PM, TMFCheesehead wrote:

    @teeba11-

    Thanks for commenting. It's funny, we've never had a Keruig at our house, but I was surprised to hear my friends say this. When I started asking others if they experienced the same, they said they had. I guess that's what happens when the blades are more important than the razors.

    Brian Stoffel

  • Report this Comment On November 23, 2011, at 3:50 PM, chadscards1274 wrote:

    @TMFCheesehead how about some credit for GMCR, my wife and I had one brewer for about 9 months it broke, it was replaced with a new one with a new 1 year warranty and they also gave us a coupon code when we registered the new brewer to get 4 boxes of KCups for what you would normally pay for 2. I think it's all too easy to slam a company that is down when everyone else is. In addition I would suggest of course we are going to hear from the several people who've had a broken brewer, are we hearing from the thousands who have never had a problem (my in-laws, my sister-in-law, best friends, etc.)

    NFLX and GMCR are in different worlds right now. GMCR is a company growing ilke a weed with wildly popular brewers and KCups that people love and keep buying. NFLX is a company that offers a great service that decided instead of explaining what was happening they would just make moves and see what happened. With the addition of NFLX was buying back it's stock in the $220 range and just issued more stock at $70 making this one of the worst uses of shareholders capital ever. Totally different stories...oh and GMCR is expected to grow profitability by 60%, NFLX not so much.

  • Report this Comment On November 23, 2011, at 5:05 PM, TMFCheesehead wrote:

    @MHenage-

    Fair points. I brought up GMCR simply because it was the ones that my friends picked out. The truth is, one of a few things is happening though:

    1) Patents running out is going to hurt the company's competitive position.

    2) It's losing traction, and the company is stuffing the channels because of it.

    I can't really say either way, and I DO really appreciate the product, AND I own a few shares of GMCR. That being said, it seems like their communication issues are more with the investment community than customers, and if you're going to err on one side, I'd say GMCR is light years ahead of NFLX.

    Brian Stoffel

  • Report this Comment On November 23, 2011, at 10:24 PM, youngblood58 wrote:

    While I love/admire all the companies highlighted in this article, I think each of their stocks is a little overpriced right now.

    One doesn't trade/invest in a vacuum, and I think it's important to understand the value of timing in one's strategy. If you were to buy any of 5 stocks here, you might lose money this year.

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