With the COVID-19 pandemic in full swing, stocks have been hit hard over the last month. Grounding your portfolio with strong companies that will remain relevant long into the future is a good way to weather current (and future) market storms. Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Starbucks (NASDAQ:SBUX), and Apple (NASDAQ:AAPL) are three companies that consumers use every day, and they make great stocks to build your portfolio around. Even though this trio has trended down with the market, they're all but certain to recover, after which these solid businesses will likely go back to building wealth for shareholders.
Alphabet's Google search page is the world's most visited website
Alphabet is the parent company of Google, whose software apps have become so commonplace that it would be hard for most people to get through the day without using one. Its core apps (Android, Gmail, Search, Maps, YouTube, and others) all have at least 1 billion monthly active users. And a recent survey indicated that 84% of people use Google to search three or more times per day. This should not be surprising given that it's the No. 1 search engine and the most visited website on the planet.
Last year, 83% of Alphabet's $162 billion in revenue came from advertising on its Google properties, including the ever-popular and lucrative YouTube. This business helped power its impressive 18.3% top-line growth year over year. It is also incredibly profitable. Last year's net income was $34.3 billion, or $49.16 in earnings per share, a solid 12% annual gain for the bottom line.
The company has an incredible $119 billion in cash and marketable securities, more than enough to weather any market downturn. Revenue may dip as companies pull back on advertising spend, but with Alphabet's formidable moat, it won't take long for advertising (and revenue) to ramp back up and continue growth for many years to come.
Starbucks has 31,795 places to get coffee
Starbucks has built a business with a $27 billion revenue run-rate centered around coffee and a place to meet outside of home or work. The COVID-19 pandemic will hurt short-term results, but the company is working to limit the impact.
Its stores are staying open but closing the dining areas and moving to a drive-thu and pickup model. This social-distancing business model won't make up for the lost sales with many working from home, but this is a temporary situation. Looking at the company's recent history will help you understand the power of the brand and why it's a great investment today.
Over the last five fiscal years, the company has added 9,890 stores, full-year revenue has grown 61%, and EPS has grown 116%. Over this time, the stock has outpaced the market and paid out a steady stream of rising dividends, making this coffee brand one that any kind of investor would love. But some its best days may be yet to come.
The company's balance sheet is strong with $3 billion in cash and cash equivalents to help get through this challenging time. Tech investments have helped spur growth and will continue to do so. Its 18.9 million loyalty members can order their favorite beverage on the app before arriving at the store, skip the line, grab a personalized latte, and have the app pay in the background. Loyalty members grew by 16% last quarter over the previous year, and payment through its app now accounts for 43% of the tender in stores.
COVID-19 will slow things down in the near term, but it isn't dampening prospects for Starbucks. The company is targeting annual long-term growth rates of 7% to 9% for its top line and at least 10% in EPS, which makes this stock one to hold no matter what.
Apple has sold over 2 billion iPhones
Warren Buffett, one of the greatest investors of our time, avoided technology stocks for decades. But he's recently fallen in love with Apple. He loves it for its brand power and rock-solid financials, which give it the ability to expand into new markets. The company's self-described "insanely great" product design mindset has helped it sell more than 2 billion iPhones since they were launched in 2009. This brand cachet gives it pricing power and high profits.
Even with the company closing stores to prevent COVID-19 from spreading, it has $107 billion of cash and cash equivalents on the balance sheet, certainly enough to ride out a dip in consumer purchases. Apple has been an incredible cash-generating engine with operating margins and return on equity rivaling the longtime Buffett holding Coca-Cola. Last quarter, it generated over $30 billion in operating cash flow, returned $25 billion to shareholders (in dividends and share buybacks), and grew diluted EPS by 19% year over year. Pretty impressive for a company that has $268 billion in trailing-12-month revenue.
This financial prowess and brand power give it a lot of flexibility to expand into new businesses and power growth. A great example is the Apple Watch, which is coming up on its fifth birthday in April. The product has gone from a high-end luxury item that only a few could own to selling over 30 million devices last calendar year.
But the company isn't just making hardware. It has its own production studio for TV and movies, a gaming ecosystem, and partnerships with healthcare companies to help detect heart disorders. Apple's strong brand will ensure its success long into the future.
Relevant for years to come
These three market-dominating companies have rewarded shareholders with solid returns and will continue to do so for years to come. With recent market pullbacks, you should consider adding these stocks as foundational holdings to build your portfolio around. Having these "insanely great" companies in your portfolio should allow you to sleep soundly, even if the markets act a little crazy from time to time.