My Top 2 Stocks: Starbucks and McCormick

In the spring of 2011, I spent many a day chained to my desk at Fool HQ listening to Brian Stoffel go on and on about rolling over his 401(k) and creating his World's Greatest Retirement Portfolio and World's Greatest Growth Portfolio. Behind all of my jokes at Brian's expense, I knew that I, too, needed to roll over an old 401(k), and that I needed a couple of high-quality stocks for the long term to do it.

I took some time to do my research, and after the requisite hemming and hawing, I got my act together and bought some great stocks that I plan to hold for quite some time. The top two positions in my personal holdings by dollar amount are also the No. 1 and No. 4 top-performing stocks in my portfolio: Starbucks (NASDAQ: SBUX  ) and McCormick (NYSE: MKC  ) .

Coffee is king
I didn't drink coffee on a regular basis until I was 27 years old, and I remember the exact reason I started: It was free. My job at an energy law firm wasn't the most glorious, but it did have its, well, perks. We had a complicated Starbucks grinder/brewer on one floor, and airpots full of pre-ground Starbucks coffee on all the others. If you were the sort who preferred your coffee iced, or in the form of something resembling a milkshake, you'd simply head outside and pick the Starbucks you liked best. There were three within a two-block radius.

It wouldn't have occurred to me to invest in Starbucks if I hadn't started drinking coffee, but once I had, there was no escaping the idea. Coffee is a thing now. Surprisingly, despite the ubiquity of the stuff, we Americans actually consume less than half the coffee we used to. In 1946, we drank 48 gallons a year on average! Morning, noon, and night, coffee was our beverage of choice (and apparently it was terrible).

Coffee is here to stay, and the market is far from saturated, but more important to me than all of this anecdotal evidence is that Starbucks is an incredibly well-run business -- one of the 25 Best Companies in America, actually. The company treats its employees well, enabling them to receive benefits and stock rewards if they work at least 20 hours a week. It is more focused on running a long-term business than it was in the past, CEO Howard Schultz adapting his leadership style after Starbucks went awry in his absence. It is the top-performing stock in my portfolio and one that I am happy to finally own.

Spice is also nice
McCormick is the largest holding in my portfolio by dollar amount, and it is also the company that I have tracked the longest. My infatuation with the company began here, with some research and an article about a great buy-and-hold dividend. McCormick has a tremendous history of growing its business, and the company's current commitment to research and development bodes well for future growth.

To be sure, things aren't always pretty in the short term. McCormick fell flat with its fourth-quarter earnings release. The thing is, when shares dropped an unheard-of 6% after those mediocre earnings, investors quickly bought up more shares at the lower price. Three weeks later, shares had recovered and are now up 7.5% on the year -- the telltale sign of a must-have equity.

Spice and seasoning may seem like an uninspiring addition to your portfolio, but it is the boring companies that do best. McCormick is the dominant company in this industry, twice as big as its next closest competitor. Net sales have doubled over the past 10 years, and a combination of strategic acquisitions and internal innovation drives current growth. The company estimates that a 2013 acquisition in China will increase sales there by 60%. Last year, McCormick launched 250 new products around the globe. Those new products accounted for 8% of total sales, and by 2015 the company expects that number to climb to 10%.

In other words, the future is bright at McCormick. Its commitment to paying dividends doesn't hurt, either. Its average annual return since 1981 has been 15.1%.

Foolish takeaway
Investors committed to buying low-P/E valuations may want to wait for a pullback before buying in, as both sit above 20 at the moment. Valuation matters, and I won't try to convince you otherwise, but I will try to persuade you to watch both of these companies for an entry point you feel comfortable with. I did my research and feel good about both of these investments, finally buying after having them on my radar for quite some time, and I encourage investors to do the same.

I am committed to both of these companies as long-term investments, and I will continue to watch them closely. Fool CEO Tom Gardner feels the same way about his top two stocks as well. We have more than a little in common, though one of his picks surprised me. Just click here to check it out.


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