3 Nasdaq Companies to Hold Forever: Apple, Costco, and Starbucks

Apple, Costco, and Starbucks offer the competitive strengths and financial soundness to be held forever, even if they are in the Nasdaq index.

May 14, 2014 at 11:00AM

Investors tend to think that companies in the tech-oriented Nasdaq Composite Index are too risky or unstable, but that's not necessarily the case for every name in the index. In fact, companies such as Apple (NASDAQ:AAPL), Costco (NASDAQ:COST), and Starbucks (NASDAQ:SBUX) are rock-solid Nasdaq components to hold for the long term, perhaps even forever.

AAPL Chart

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The really big Apple
If there's one company that illustrates how the tech sector has evolved and matured during the last several years, it's arguably Apple. With a market capitalization of more than $510 billion, Apple is the biggest corporation in the world, and it produced more than $36.2 billion in cash flow from operations during the quarter ended on March 29 alone.  

Apple does not generate this extraordinary financial strength out of thin air. Sales and cash flow are a reflection of rock-solid fundamentals at the business level. Extraordinary brand power, a reputation for quality, and a remarkably loyal customer base differentiate the company from the competition. This allows Apple to charge higher prices for its products and generate superior profitability for investors.

Growth has understandably slowed down as Apple has grown in size during the last several years, but the company still managed to deliver better-than-expected financial performance during the last quarter, thanks to an increase of 17% in iPhone unit sales to more than 43.7 million devices during the quarter.

CEO Tim Cook has repeatedly said that Apple will be entering new product categories in 2014. If the company can prove to investors that it still has what it takes to successfully innovate and disrupt different markets, this could do wonders for the stock in terms of expected growth potential.

Costco is built to last
Discount retail is a stable and reliable industry, and Costco is outgrowing the competition in that defensive business because of its smart business model and remarkable competitive strengths.

Costco makes most of its profits on membership fees as opposed to margins on sales. This allows the company to sell its products at cost, or sometimes even at a loss, in order to keep customers happy and renewing their memberships regularly.

Costco customers seem to be, in fact, quite pleased with the service. Retention rates are usually higher than 85% at the whole company level, and more than 90% in major markets like the U.S. and Canada. According to data from the American Customer Satisfaction Index, the company has a score of 84, the highest one in the industry, and considerably higher than the sector average of 80.

As the company grows in size, it generates additional cost efficiencies, and it gains more negotiating power with suppliers. This means Costco gets to sell its products at increasingly competitive prices over time.

The company becomes stronger and more efficient as it becomes bigger, and this attracts more loyal members over the years -- quite a powerful and convenient business model for Costco and its shareholders.

Hot and tasty growth potential from Starbucks
With a total of 20,519 stores on a global scale at the end of the last quarter, Starbucks has positioned itself as one of the most valuable and recognized brands in the consumer sector.

Demand remains notoriously strong for a company of its size. Even in the U.S., where Starbucks has reached a significant level of market penetration, same-store sales increased by 6% during the quarter ended on March 30, a very healthy sign when it comes to evaluating demand strength in major markets.

In the China/Asia-Pacific region, where Starbucks still has enormous room to increase its store base count, total sales jumped by a remarkable 24% to $265.3 million during the quarter, so Starbucks is far from reaching a saturation point on a global basis considering that new store openings are not cannibalizing sales at previously existing locations.

Menu innovation is another exciting growth driver for Starbucks. The company is leveraging recent acquisitions, such as Evolution Fresh, La Boulange, and Teavana, to expand its portfolio of offerings. In addition, Starbucks is venturing into handcrafted sodas, and management is quite optimistic about the possibilities for growth in its evening menu, which includes wine and beer in combination with more sophisticated food items.

Remarkable demand strength and multiple growth venues during the coming years bode well for investors in Starbucks in the long term.

Foolish takeaway
The Nasdaq Composite Index may be home of many of the most risky and explosive tech names, but it also includes solid and dependable companies worthy of a long-term commitment. Apple, Costco, and Starbucks offer the competitive strengths and financial soundness to be held for decades to come, perhaps even forever.

Innovation can make you rich
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Andrés Cardenal owns shares of Apple. The Motley Fool recommends and owns shares of Apple, Costco Wholesale, and Starbucks. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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