Disney (DIS 0.18%) and Starbucks (SBUX 1.00%) have each proven to have quality businesses that can withstand various economic tests. If you want to invest in stocks but are concerned about the risk of losing money, then companies like these two can be a good place to start.
There is an excellent chance that each will be around and performing well over the next decade, which ensures shares in the companies will have some value. Furthermore, each has loyal fans willing to wait in line to spend money, usually a sign of pricing power.
If the safety of your capital is of primary importance and you want to invest in stocks, Disney and Starbucks are two good choices to consider.
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1. Disney benefits from a powerful flywheel
Entertainment giant Disney has been around for nearly a century, delighting families from around the world in multiple mediums. The core of the company is its unique ability to tell stories that resonate. Disney can make a movie that becomes a hit at the box office. The same film can attract subscribers to its streaming services, and eventually become an attraction in some form at one of its theme parks and/or some product (or products) that it can sell in stores. The order of that process can be mixed and matched but generally touches multiple revenue-generating points no matter how it begins.
From 2011 to 2019, Disney increased annual revenue from $41 billion to $70 billion (a 71% increase) while averaging an operating profit margin of 22.3%. The healthy profit margin can give Disney a cushion against adverse effects on any part of its business.
Meanwhile, management usually has a plan that helps the company adapt to fit with changing consumer tastes. Most recently, this has meant putting an emphasis on expanding its streaming services. Overall, Disney+, Hulu, and ESPN+ have amassed 174 million paying subscribers. By 2024, management expects the House of Mouse will have over 300 million.
Admittedly, the near term could be a bit volatile for Disney as it continues to manage in a pandemic-hampered environment and gradually welcomes people back in person to theme parks, movie theaters, hotels, and cruise ships. That's one reason it's important to have a long time horizon; it gives companies time to adjust to changing circumstances.
2. Starbucks: Who doesn't like good coffee?
Starbucks is known around the world for having some of the best coffee. There is rarely an occasion in my neighborhood where any one of the three Starbucks does not have a long line of patrons waiting for the privilege to buy something.
Starbucks has also seen a big jump in annual revenue, going from $12 billion in 2011 to $27 billion in 2019 (a 125% increase) while averaging an operating profit margin of 15.1%. Starbucks grew revenue more than Disney, albeit at lower profit margins. Nevertheless, they are both excellent operating performers.
The pandemic changed the way many people spend their working hours, perhaps permanently. Starbucks adapted by shifting locations to more suburban areas and emphasizing drive-thrus. If more folks are working remotely, there is less need for Starbucks to occupy expensive downtown locations, which could boost profit margins over the next several years.
It helps that Starbucks serves the coffee market that is estimated to grow at a compound annual rate of 8% to 9% in the next three years. As one of the leading companies in the arena, it could capture a good part of that increase.
Investor takeaway
Disney and Starbucks are proven companies with a history of excellent operating performance. While the future is uncertain, you can feel comfortable with their ability to adapt to the changes to keep the business profitable in the long run. Therefore, investing $5,000 in Disney and Starbucks stocks today is likely to make you wealthier in 10 years.
