If You Could Only Buy 1 Stock...

I was recently asked a simple but thought-provoking question: What stock would I buy if I could buy only one?

At first, it seemed like a simple enough query, as all I had to do was choose one from the many that I already own and/or follow. The more I thought about it, though, the more complicated it became.

Follow along to see which stock I chose and my reasons for doing so.

My initial strategy
My initial strategy was to identify stocks with massive upside potential. The first to catch my attention were SodaStream International (Nasdaq: SODA  ) and Green Mountain Coffee Roasters (Nasdaq: GMCR  ) -- the prognosticators of at-home soda and single-cup coffee makers.

It isn't an exaggeration to say that these companies were the darlings of Wall Street for much of 2011. SodaStream nearly tripled in price at one point, going from $27 a share in January to more than $77 a share in August. And over roughly the same period, Green Mountain had gone from $33 a share to more than $110, an increase of 218%!

In addition, both companies employ the favorable razor-and-blades business model. Owing its name to the Gillette Co., the maker of disposable razors, this model refers to any business practice in which a company offers a one-purchase product that is complemented by additional components that the consumer must buy repeatedly in the future, e.g., blades for a razor.

In the case of SodaStream and Green Mountain, the one-time products are the soda- and coffee-making machines. The additional products are the refills. In either case, you can't have one without the other. And in this way, both companies have sought to shore up future revenue streams by means of repeat sales.

But what giveth may also taketh away; despite their early allure, the price of both stocks cratered in the latter half of last year. SodaStream plummeted from more than $77 at the beginning of August to around $28 by the end of November, falling as much as 26% on a single day. Green Mountain followed suit, going from $110 a share down to $40 a share in less than two months.

If I were to buy only one stock, in turn, it couldn't be either of these, as I'd never be able to sleep at night while my capital was vulnerable to such caprice.

Getting more realistic
The fact that I wouldn't risk everything on a speculative growth stock, of course, doesn't mean that growth isn't important. Indeed, capital appreciation is the name of the game. It's the reason I invest, and I suspect it's the reason you do, as well.

But there's a difference between speculative growth and measured, sustainable growth. Speculative growth is akin to that discussed above. While its potential is intoxicating, it's also subject to rapid deflation at any moment. Netflix (Nasdaq: NFLX  ) provides another prime example.

Netflix Stock Chart

Netflix Stock Chart by YCharts

As you can see, the online and by-mail movie rental company had an impressive run in terms of share price from the beginning of 2010 until about halfway through last year. It then fell out of bed, as they say, after the company announced plans to split into two separate entities -- one for streaming services and the other for its traditional DVD-by-mail business. Although these plans were later abandoned, the damage had already been done, as the share price had decreased by as much as 80% at one point last year.

Sustainable growth, on the other hand, is much more measured in nature. It has a longer history behind it, and a company with sustainable growth most likely has a durable competitive advantage -- which Warren Buffett refers to as an economic moat.

According to the Oracle of Omaha, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company, and above all, the durability of that advantage." Buffett went on to say that the "products and services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

While an economic moat derives from a variety of sources, two of the most important are a company's size and brand entrenchment. Size imparts economies of scale, meaning that larger companies can offer products at a lower cost than smaller ones. And brand entrenchment accords pricing power. In terms of the former, think McDonald's, which profitably sells hamburgers for a fraction of what you or I could. In terms of the latter, think Apple (Nasdaq: AAPL  ) , which sells smartphones for seemingly twice as much as its competitors, despite an absence of clear technological superiority.

Settling on one stock
With this in mind, and after much though, I've concluded that if I could only buy one stock, it'd be the consumer products giant Procter & Gamble (NYSE: PG  ) -- the same stock, in fact, that I recently recommended as the one stock for new investors.

Like McDonald's, P&G clearly has size on its side. It's a Fortune 500 company with annual revenues in excess of $80 billion and a market cap of nearly $180 billion, making it the 10th largest company in America. Like Apple, its brands accord it significant pricing power. At last count, the company owns 24 billion-dollar brands ranging from Tide laundry detergents to the aforementioned Gillette razors -- though it is selling its Pringles division. And lest you think that its size inhibits growth, the stock almost doubled for shareholders over last 10 years, nearly twice the 51% return of the S&P 500.

While this isn't a stock pick that will impress anyone with its ingenuity, perhaps that's just the point, as some of the best finds are often in plain sight. On the other hand, if you are looking for something different, then you should check out our new free report, "The Motley Fool's Top Stock for 2012." In it, our chief investment officer identifies his absolute favorite company for the year. To access the report before the rest of the market catches on, click here -- it's absolutely free.

Foolish contributing writer John Maxfield does not have a financial position in any of the companies mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Apple, Green Mountain Coffee Roasters, SodaStream International, 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 (34) | Recommend This Article (184)

Comments from our Foolish Readers

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 February 17, 2012, at 11:22 AM, 1984macman wrote:

    "...despite an absence of clear technological superiority..." I see. Because you think this, it must be true. You flubbed it right there. What the devil do you think all this patent litigation is about? Apple isn't rolling over and playing dead like it did when Windows ate its lunch. This is the mother of all litigations, and it's totally about technological superiority. If Apple only breaks even, it's permanently sitting at the table of a paradigm shift in computer interfacing.

    But stick with your stock that has doubles every ten years. I'll stick with Apple, and I'll be in Scotland before ye....

  • Report this Comment On February 17, 2012, at 11:55 AM, Purpleboarder wrote:

    Apple? For real? Full disclosure, I haven't read all of the fine/mundane details of every legal action they have taken (nor do I have the time). But I've also scanned some articles where they are having a devil of a time getting those profits into the hands of its investors here in the US. ie, Fed taxation on profits made overseas, etc.....Sorry, if a company can't (or won't) give out dividends, Apple is so far down the list it's not funny. Dividend distribution is the one common denominator that separates surviving/profitable companies beyond the 100 year mark.

    I would also suggest AT&T (T), Phillip Morris (PM), a stable utility (WGL). yes, I know PM is very young, but you should use MO as a proxy for those needing a sound, reliable historic background. I agree w/ the author that PG 'aint goin' nowhere', but we can certainly get a better yield.

    Apple. It's a great company (for now), just like MS, Kodak, etc. They will grow fat, lazy, lose their edge, and some other up and coming tech company will eventually eat their lunch. I'm not bashing Apple, as I have and love my iPhone 4s. But it's not my 'if I can only have one' stock. Technology may be great for short/medium term, but not a 'forever stock'..... Have a great weekend!

  • Report this Comment On February 17, 2012, at 2:28 PM, Hawmps wrote:

    Interesting... you can't even mention Apple without some die-hard getting his shorts in a wedgie.

    Disclaimer- I do have an iPod and use it daily. But I also shave daily.

    If you had to play by a rule that says you can only buy one stock, I agree that PG would be an excellent choice. No worries, the beast can feed itself with every dividend it spits out, and as Buffet would say, "any idiot could run it". Obviously, there are more companies out there that would fit the bill as well, but PG is a good call.

  • Report this Comment On February 17, 2012, at 6:14 PM, sheldonross wrote:

    1984macman sounds like an unbiased poster...

  • Report this Comment On February 17, 2012, at 6:29 PM, karlm1 wrote:

    Berkshire Hathaway

  • Report this Comment On February 17, 2012, at 6:37 PM, LEOFemedlers wrote:

    I can't tell you how much I love my AAPL stock. It may not be a forever stock but I don't see it going away (or down) anytime soon. Everyone and their dog has an ipad now. And if they don't have one they want one. China will be a huuuuuge AAPL consumer in the years to come.

  • Report this Comment On February 17, 2012, at 7:03 PM, topbeancounter wrote:

    Those ships have sailed...my can't miss, long-term pick was GE in the mid-30's since it was the biggest in all their fields. I think I may get back to even sometime during the next ten years. That taught me to not listen to others "can't miss" that generally happily disclose they have no position in anything they write about. Well, that makes us even. I don't either and I sure as hell won't be out there buying these either.

  • Report this Comment On February 17, 2012, at 8:46 PM, TMFPennyWise wrote:

    I like P & G for a one and only pick too. Nice wide range of products, great dividend track record, and in the midst of shoring up its world wide branding presence (and incidentally introducing its much anticipated and awaited 'Tide Pods' this month--I admit it, not as sexy as a new I-phone.). PG will be v. good for many years to come.

    As for Apple--a fun, fashionable and lucrative stock (if you can bear to sell it). And I guess I'm the only person on the planet who doesn't own an I-phone and doesn't really care to, so I might be biased one way or the other.

  • Report this Comment On February 17, 2012, at 9:21 PM, Usnzth wrote:

    My one pick would be an index fund, preferably one with a dividend. The whole idea of only one stock is foolish with a small "f".

    The wisest man who ever lived, as well as one of the richest, conselled putting your money into a minimum of 7 to 8 investments, or possibly as many as 15. (Ecclesiastes 11:1,2)

    topbeancounter's post is the best argument for this strategy.

    And there is NEVER any such thing as "set and forget!"

    Having said all that, I recognize that this article is simply an exercise in selecting a suitable stock to place in a larger portfolio, and it does help the thinking process.

  • Report this Comment On February 17, 2012, at 9:52 PM, TempoAllegro wrote:

    You know, the idea that we should choose only one stock kind of goes against the idea of individtual stock picking! I know someone smart said to put all your eggs in one basket, then watch that basket, but geez, taken it a little seriously, aren't we, guys?

    That being said, I agree that PG is a great choice for a core holding. I do not think an idiot can run the company, though...managing a company with 20+ brands would not be an easy task. Easier than AAPL, though, certainly....

    Disclosure: I am an AAPL shareholder, and it is my largest holding at the moment.

  • Report this Comment On February 18, 2012, at 12:49 AM, kmet312 wrote:

    Hilarious. I hope nobody that asked you that question didn't read my blog. Wait, nobody reads that, so it's all good.

    http://beta.fool.com/kmet312/2012/01/19/theres-bookworm-appl...

    It's mildly funny because I also mentioned how I'm not a fan of Procter, either. In relation to other stocks out there, anyway.

    http://beta.fool.com/kmet312/2012/02/01/slow-and-steady-vers...

    I have several more blogs, if you need more ideas.

  • Report this Comment On February 18, 2012, at 1:40 AM, DR1P wrote:

    Obviously, 1984macman and LEOFemedlers haven’t been keeping up with current events. Apple can’t sell iPads in China and the Chinese government has been confiscating all of them that they find. Something about… patent litigation.

  • Report this Comment On February 18, 2012, at 1:18 PM, 2ndInvestorFool wrote:

    Regarding PG article, the author states PG almost doubled in ten years. That must have occurred in the first five. I bought in '07 and have yet to see green.

  • Report this Comment On February 18, 2012, at 8:15 PM, Gotog wrote:

    P&G is a fine company but I think Colgate Palmolive is a better bet in the consumer products industry over the long run. Both have been paying a dividend since the 19th century and have a track record of increasing their dividends.

  • Report this Comment On February 19, 2012, at 9:35 AM, gilsh wrote:

    one pick investment cannot be a stock. it is very deceiving to talk as if such thinking has any point in it. because choosing only one stock is just like buying a lottery ticket.

    investment rule #1: don't lose money.

    therefore,

    investment rule#2: diversify.

    therefore,

    if one is forced to discusss single-investments, there is only one logical, careful, methodical solution: index-style investments.

    and we all know that in the long term, so far, this is the only form of investment that is consistently working. maybe not the highest profits unlike venture investments, but surely also no the horrible losses.

  • Report this Comment On February 19, 2012, at 2:16 PM, CromulentBrad wrote:

    ARCO...the sole mcdonalds franchise owner in south and central america.

    with approximately 1800 current locations, it has massive potential for growth in a rapidly emerging market AND it's one of the most trusted, respected and recognized names in the entire world. it's not every day growth and stability intersect so neatly in one stock.

    as an added bonus, less than one year after ipo, it's already paying a dividend.

    ba da da da da, i'm loving it.

  • Report this Comment On February 20, 2012, at 3:07 PM, rhealth wrote:

    SDY. Is it cheating to use an ETF?

  • Report this Comment On February 24, 2012, at 1:32 AM, apinkasovitch wrote:

    When I started reading the article, I almost shot myself in the foot - I used to follow SodaStream when it was hovering around $30 and then just forgot all about it without investing. When I saw "$77" I thought I missed the run - I feel much better that it fell back down and I didn't lose out on some serious potential paper gains...Good article!

  • Report this Comment On February 24, 2012, at 11:51 AM, step69 wrote:

    Why not one of the stocks you mentioned,McDonalds(MCD)? For long term, you know they will still be around 30 years from now. You could also say the same for Coke(KO), Pepsi(PEP) or General Electric(GE).

  • Report this Comment On February 24, 2012, at 12:40 PM, wmras wrote:

    My choice for one stock and one bond are ETFs:

    PFF, iShares S&P US Preferred Stock Index (5.4% div.)

    LQD, iShares Investment Grade Corporate Bond (4% div.)

    Both are very liquid, pay dividends monthly, and flucuate little compared to the market.

  • Report this Comment On February 24, 2012, at 12:43 PM, Swoop1918 wrote:

    Personally, if I could only buy one stock, I'd go for one with lots of built-in diversification and a splendid long-term track record -- Berkshire Hathaway.

    Never owned it, probably never will, but in this hypothetical scenario, it would be my choice.

  • Report this Comment On February 24, 2012, at 12:45 PM, ramisdom wrote:

    Many of Berkshire's holdings qualify as lifetime holdings, go with the Sage of Omaha's reasoning, however, collect the dividends directly by purchasing PG, MD, KO, etc. yourself. Key to all of their models and long-run success are marketing to everyman, worldwide at very competitive prices that all can afford in nearly all business cycles. Very low-tech with huge moats around their franchises that are not likely to be overtaken by anyone.

  • Report this Comment On February 24, 2012, at 12:52 PM, rgperrin wrote:

    No argument here. All things considered, P&G would be my choice, too, possibly followed by J&J.

  • Report this Comment On February 24, 2012, at 1:58 PM, RockenD wrote:

    Apple like GE will have it's leadership problems with the loss of Jobs. Great leaders are hard to find and even harder to replace due in part to the comparison any new leader has to live with.

    PG is a favorite core trading stock of mine and while I like the dividends it's the combination of dividends, buying the stock (usually by selling a $65 put) in the $63 range then selling the $65 calls until it goes away then repeating the process. PEP, JNJ and PCL are all good for this but PG has been the most consistent, like a long term girl friend.

  • Report this Comment On February 24, 2012, at 2:00 PM, evanmacdonald wrote:

    WM. It's not like we're suddenly going to start producing less trash, and they keep figuring out more ways to make money off of it. Not to mention a huge moat, because who the heck wants to get into the unsexy waste management business.

  • Report this Comment On February 24, 2012, at 3:11 PM, lache02 wrote:

    Does a 5.4% FCF yield per share and EV/FCF ratio of 20.9 equate to making PG the 1 stock to own? I thought a EV/FCF ratio above 10 is supposed to be yellow flag. I hope my metrics are correct. Haven't calculated other metrics yet, so and not sure the company meets the growth, margin, balance sheet, opportunities, valuation and dividend growth tests that MF likes to see in a stock to purchase. I am not advanced enough as an investor to use puts and calls.

  • Report this Comment On February 24, 2012, at 3:17 PM, offwatch wrote:

    10 years ago both PG and Exxon Mobil (XOM) traded at about $35/share now PG trades at $65 +/-and XOM trades at $85 +/-. Granted the dividend PG pays out is 3.16% vs. 2.16% for XOM but overall return favors XOM as does a 20 or even 30 year comparison. They actually favor XOM by a wider margin. I do have skin in the game having owned both but no longer own PG

  • Report this Comment On February 24, 2012, at 3:57 PM, AJurn wrote:

    The logic is good but the idea of investing in P&G is outdated based on triple percentage return. There was a stock where it kept splitting and gave a 800x times return from bottom to top within 3 years while the next best shot was Microsoft (MSFT) which gave 650+ times return.

  • Report this Comment On February 24, 2012, at 4:23 PM, jimpaulk wrote:

    This fool retired from P & G in 1989 after a wonderful career, likely one of the best companies in the U.S. to work for. The word around the company was buy anytime it was below $80/share because it will go over a $100/share and split - and it has done that. Sales went to $1 billion/year while I was there and look where it is today. Eyes on Tomorrow is the book about PG and because of its outlook for the future and incredible management over many decades, this is a great stock to have in one's portfolio - not the only one, but if I could only have one, this would be it. FOOL ON!

  • Report this Comment On February 24, 2012, at 8:51 PM, johnt8 wrote:

    PG is a great choice but I realize that the "one stock" statement is just for conversation purposes. Nobody I know owns only "one Stock".

    The posted suggestion on WM was a good one. Charging to pick up the trash then selling part of it as recycle stuff then processing and sell some more of the trash as compost and then owning a lions share of the US market sound like a money machine to me. In addition they pay a good dividend.

  • Report this Comment On February 25, 2012, at 8:40 AM, Chef51 wrote:

    Can IBM even be considered in the mix for the next 100 years for a solid investment? It's been good in my portfolio since 1986 I bought it around $50.

  • Report this Comment On February 25, 2012, at 9:02 PM, jnlynx wrote:

    PM hands down...adictive worldwide.. nuff said

  • Report this Comment On February 27, 2012, at 6:48 PM, rickolevio wrote:

    I would debate between Westport Innovations(WPRT) and Clean Energy (CLNE) and probably settle on Westport.

  • Report this Comment On March 16, 2012, at 4:09 PM, fuzzylou wrote:

    If I could own 1 stock, it would be Berkshire Hathaway!

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