One of my favorite chapters in David and Tom Gardner's You Have More Than You Think is right in the middle of the book, titled "Obviously Great Investments." Lest you think that this is some sort of suck up to my bosses, let me say that while I loved the idea of the chapter -- that some businesses are so obviously great they make for a safe place to invest hard-earned moolah -- I always thought the title was too over the top. I mean, really, if Microsoft (Nasdaq: MSFT ) was such an obviously great investment, then why didn't everyone get in on it?
Maybe the chapter would have been more suitably titled "Obviously Great Businesses That Could Be Killer Investments." (Yeah, I know. There's a reason they didn't make me an editor, OK? Or a headline writer for that matter.) The point is that there are obviously great companies out there. Companies with ideas so profound -- or franchises so strong -- that they're bound to be woven into the fabric of the lives of thousands if not millions of consumers. Just look at the multi-billion dollar franchises that have become Mr. Softy, Gillette (NYSE: G ) , Pfizer (NYSE: PFE ) , Gap (NYSE: GPS ) , General Electric (NYSE: GE ) , Wrigley (NYSE: WWY ) , Johnson & Johnson (NYSE: JNJ ) , Nike (NYSE: NKE ) , and Intel (Nasdaq: INTC ) . It's no coincidence that these are all companies David and Tom referred to as "Obviously Great Investments."
Fortunately for us Joe Average investors, their list is woefully incomplete. Not only does it leave off other great public companies, such as Home Depot (NYSE: HD ) , it fails to recognize that some of the best firms have chosen to remain private, staying away from the choppy waters of global stock markets.
Five, in particular, leave me lusting to fork over some of my hard-earned dollars for a share of their profits. In listing them below, I'm making a public plea for them to consider our securities markets so that common Fools like us can get in on their action.
The Trump Organization: the ultimate REIT
Stop! Before you type that message that cries out, "WHAT? Trump! Are you nuts? This is the same guy who is bucking to have a fragrance named after him. The same guy whose casino business is on the verge of bankruptcy!" So it is.
Remember, I'm not talking about Trump Hotels & Casino Resorts (OTC BB: DJTC), but rather the private Trump Organization, the real estate holding firm through which Trump reportedly owns some 18 million square feet of prime Manhattan real estate.
According to Hoover's Online, The Trump Organization netted $8.5 billion in revenue last year alone. Compare that with Motley Fool Income Investor pick American Financial Realty Trust (NYSE: AFR ) , which had $237 million in sales for the trailing twelve months. American Financial rents space to banks and other financial institutions, but I doubt it owns anything like Trump's digs at 40 Wall Street in lower Manhattan.
Of course we have no way of knowing what The Trump Organization's true cash flow is, but if even a fraction of its profits on its $8 billion-plus in sales were returned to shareholders, as real estate investment trusts are required to do, then the firm would likely pay a yield at least equal to American Financial's 7.21%. Talk about an income investment.
Crate & Barrel: need an armoire?
Is there a company that's responsible for furnishing more homes than Crate & Barrel, otherwise known as Euromarket Designs? Catering to couples of all ages but especially to the recently betrothed, Crate & Barrel is easily one of the best-known brands in America's malls. It wasn't always this way, of course. Gordon and Carole Segal founded Crate & Barrel in 1962 in Chicago, using, literally, crates and barrels to decorate and stock merchandise in their first store.
Gordon remains atop the company today as CEO, and that may be why you still detect a very earthy feel every time you enter one of his stores. Well, that and the fact that Crate & Barrel's European designs have remained hugely popular. Growth has slowed since we first profiled the company in 1999, but business remains strong. Hoover's reports that Crate & Barrel operates more than 115 stores in 21 markets, up 44% from five years ago. And since 1989, when Crate & Barrel first passed $100 million in annual revenue, sales have risen 765%, to $865 million -- as of the end of 2003. That's 9% growth year-over-year, pretty healthy for a 40-year-old retailer.
What would make this company such a compelling investment is that, at its age, the business could easily be in decline. But Crate & Barrel never really gets old. Indeed, it's seen as relatively young and hip -- the new registry hub for brides and grooms to be. Best of all, more than a third of its merchandise is unique to the retailer, creating both a fresh feel, and a distinct and enduring competitive advantage.
Virgin Group: a new British Empire
Not only headed by a knight of the United Kingdom, but arguably the only person in the world who exceeds Donald Trump as a business celebrity. However, that oversimplifies the genius of Sir Richard Branson.
Virgin began in 1968 with a magazine, earned fame in the '70s signing notorious punk band The Sex Pistols, started an airline in the '80s, sold its music group to EMI for $1 billion in the '90s, and then took onApple Computer's (Nasdaq: AAPL ) iPod shortly after announcing plans to take tourists to outer space just a month ago.
Branson actually took his empire public in 1986 in London, and then on to the Nasdaq stock market in 1987, only to buy out all shareholders the following year. It's too bad, because the company could be the classic definition of a Rule Breaker. (For more on this give David Gardner's Motley Fool Rule Breakers newsletter a try. It's free for 30 days.)
Think about it: If I had told you that one man would start 350 fundamentally different businesses and forge them all into an $8 billion corporate empire, you'd call me certifiable, and then maybe the cops. But that's exactly what Branson did, and he's not done. According to a recent article in Fast Company, Virgin still has $450 million in its coffers waiting to spend on another rule-breaking, crazy idea that will defy the odds and once again expand the empire. Considering Branson's track record, I'd be more than happy to be along for the ride as a shareholder. (Though I'll admit News Corp's (NYSE: NWS ) Fox channel's deal for The Rebel Billionaire, in which a daredevil newbie inherits Branson's job, might make me a tad nervous.)
Cold Stone Creamery: ummm, ice cream
It's all in the name for Cold Stone Creamery. The ice cream purveyor literally lets its customers create unique blends from assorted toppings and scoopfuls of flavorful choices -- from the basic to the exotic. The blending occurs on, you guessed it, the store's signature cold stones.
I'll admit I like this company in part because of the way I can create my own favorite ice cream on the fly. But there also appears to be a sturdy financial underpinning to the business. Cold Stone Creamery opened its first store in Tempe, Arizona in 1988. Today, Hoover's reports the firm has 825 company-owned and franchised outlets that generated $156 million in 2003 sales, up 77% from the year prior and more than triple 2001 sales. A brochure from our local store says the firm is committed to having 1,000 locations by the end of this year.
That growth plan is what really attracts me to the company. Indeed, some of the best growth stocks of the past 40 years have started as small niche restaurants. Consider Taco Bell, a favorite of Peter Lynch that's profiled in his investing classic, One Up On Wall Street. Taco Bell first was a niche player in Mexican-flavored fast food in California and then successfully repeated the concept across the country, generating huge returns for shareholders till PepsiCo (NYSE: PEP ) bought the firm for $40 per share. (Taco Bell is now a subsidiary of YUM Brands (NYSE: YUM ) .) Among today's tasty options is niche eatery Buffalo Wild Wings (Nasdaq: BWLD ) , a Motley Fool Hidden Gems pick. It, too, is expanding like crazy and earning big gains in revenue and same-store sales.
Cold Stone appears to have the wherewithal to follow these successes, but will be almost totally relying on franchising to reach the same heights. Yet that shouldn't be an issue. Initial franchise fees range from $35,000 to $40,000 with a total investment of between $257,335 to $366,670. Average store sales for the prior year, however, were more than $189,000. At that rate, the concept easily appears to be a long-term moneymaker for all but the worst franchisees.
Smarte Carte: a better porter
If boring is beautiful, Smarte Carte, I love you. The little firm from Minnesota specializes in something so exceedingly simple it's elegant: It provides pay-as-you-use luggage carts and lockers at airports, amusement parks, railway stations, and malls.
As with most firms, Smarte Carte had humble beginnings in 1967 when its founder was contracted to help a company streamline the development of the first airport luggage carts. Since that time the company has diversified into related businesses with mall carts and strollers and biometric lockers that use fingerprints to enhance security. The locker product, in fact, has made the company mildly famous. When the Statue of Liberty reopened over the summer, Smarte Carte's lockers were in place to give visitors with backpacks and other disallowed carry-alls a secure storage area for their belongings.
Today, Smarte Carte serves more than 1,000 locations on five continents. Its inventory of rentable products includes 10,000 strollers, 3,000 mall carts, 85,000 baggage carts, and 34,000 locker doors. Revenue totals for Smarte Carte aren't publicly available, but we have enough anecdotal information to draw some conclusions. For one, a private equity firm sold Smarte Carte in 1996 for $113.5 million. Most buyouts are for no more than two to three times sales. A good estimate, then, might peg Smarte Carte's 1996 sales at $56 million. Were the firm to grow annually at 20% since -- not unlikely considering the expansion into malls and lockers -- then $200 million in 2004 revenues seems achievable. After all, if Smarte Carte were to rent all of its 80,000 carts just once every day during the year, it would book $62 million in revenue.
Also, it's important to bear in mind that as a rental business, Smarte Carte isn't under pressure to keep constantly churning out new products to generate revenue. That suggests the firm generates a prodigious stream of cash flow -- music to this Fool's ears.
So, Trump, Crate & Barrel, Virgin, Cold Stone, Smarte Carte, what say you? Will you join us in the public markets? Here's hoping. And be sure to tune in next week when I profile five firms that have so thoroughly destroyed shareholder value that they ought to be private.
Motley Fool contributorTim Beyersis contemplating whether to watch Sir Richard Branson's new reality series. For now, he'll stick with covering the unfolding saga of Trump'sApprenticewith fellow Fools Dayana Yochim and Rick Munarriz. Tim owns shares of Buffalo Wild Wings. You can view his Fool profile and stock holdingshere. The Motley Fool has adisclosure policy.