There's plenty of vice in the world -- some would argue way too much -- but that doesn't mean you have to invest in it to make money. In fact, "feel-good" companies like Starbucks (NASDAQ:SBUX), Whole Foods Market (NASDAQ:WFMI), and Costco (NASDAQ:COST) might actually offer investors better return on investment. A recent study by Peer Insights showed that a feel-good "consumer experience" portfolio has absolutely crushed the market -- posting greater than 20% annualized returns -- since 2000. In these post-Enron days, corporate greed is so passe. Many companies find that a feel-good, people-powered approach to business charms loyal customers, resulting in highly profitable ventures that can reward investors handsomely.
What's more, if you own shares of companies that reflect your personal values, then you're more likely to follow them and hold them for the long term: two of the keys to investing success.
More than just java
A new Starbucks seems to crop up in every nook and cranny, but you probably don't mind. After all, Starbucks tries to make corporate responsibility part of its mission. As just one case in point, consider Starbucks' high-profile environmental policies. (Its latest innovation is the first paper drinking cup to include 10% post-consumer recycled content, which Starbucks says will cut its use of new tree fiber by more than five million pounds this year alone.)
Given Starbucks' attention to publicizing its pro-employee, pro-community, and pro-environment initiatives, it knows that its do-gooder attitude is an important part of its consumer appeal. Employee stock plans and health care for full-time employees are just some of the elements that founder Howard Schultz considers crucial to the business.
Of course, Starbucks does have competition -- rival Green Mountain Coffee Roasters (NASDAQ:GMCR)is also known for its social responsibility -- but let's face it, Starbucks had the future in mind when its first store opened in 1971.
Jazzy java: Over the past five years, Starbucks has delivered an average 23.8% increase in sales and a 36.2% increase in net income. Its stock price has more than tripled over that time frame.
The whole (organic) enchilada
Whole Foods Market is another feel-good stock play. Its astronomical growth in recent years shows that its customers are willing to pay higher prices for its quality organic goods and its more-than-passing interest in environmental and community issues.
Just like Starbucks, Whole Foods knows that happy employees help make happy customers. With salary caps for upper management and its "shared fate" initiative, in which employees are granted stock options that many companies reserve only for the top brass, Whole Foods has helped spearhead the new age of cooperation in corporations. Whole Foods' stance on many issues makes customers and shareholders alike feel good about their involvement with this company -- which actually helps boost its fortunes, not burden them.
Whole Foods has loads of competitors -- not just conventional grocers like Safeway (NYSE:SWY) and Kroger (NYSE:KR) but also more organic, gourmet names like Wild Oats (NASDAQ:OATS) and privately held innovator Trader Joe's -- but Whole Foods has carved out a niche for itself as the first choice for many feel-good foodies.
Outrageous organic: Whole Foods' five-year average growth rates in sales and earnings clock in at 20.7% and 29.3%, respectively. Investors who bought Whole Foods five years ago watched its stock price skyrocket nearly 400%.
The low cost of feeling good
Costco is another company that gets the feel-good approach. But instead of the cushy chairs, smooth music, and "third place" mentality that both Whole Foods and Starbucks exemplify, it's all about concrete floors and fluorescent lighting.
Jim Sinegal's company is no traditional discounter. Given its eclectic and ever-changing assortment of goods, from giant tubs of mayo to fine wine and high-priced jewelry (at a discount, of course), Costco has proven itself an amazing company that attracts many different demographics, including affluent consumers.
What makes me think Costco's another company with people power? Well, Costco's another fierce defender of employee-friendly business. With a $450,000 salary in 2005, CEO Sinegal earns a fraction of what many other successful CEOs take home. Costco pays its workers more than the industry average, and provides exemplary benefits. For example, it contributes to 401(k) plans and provides health care to more than 90% of its employees. Those are among the reasons why Costco has one of the lowest employee turnover rates in retail.
Slow and steady wins the race: Unlike our previous examples, Costco is more of a slow and steady grower -- with the added caveat of being a discounter -- with both sales and net income growing by an average of about 11% over the past five years. Its stock appreciation has reflected that slower growth, growing 30% over that period. Still, double-digit share appreciation's nothing to complain about when compared to some of its discount retail rivals.
Feeling good, the Foolish way
Peer Insights' market-thumping consumer experience portfolio included both Starbucks and Whole Foods -- stocks that fulfill consumers' wants and needs. These best-in-class businesses deliver a differentiated customer experience, and they're on to something big.
David and Tom Gardner have long identified best-in-class businesses for their Motley Fool Stock Advisor members, and they have recommended Starbucks, Whole Foods, and Costco on different occasions. These picks have helped post the brothers up 56% on average vs. 14% for the S&P 500.
If you'd like to check out their favorite new picks and review all of their past recommendations, click here to join us free for 30 days. You'll find a whole lot of best-in-class businesses that are poised to reward shareholders monetarily and otherwise.
Most of us strive to feel good, including where we shop. That's why the idea of a feel-good portfolio is so appealing. What more could anybody want?
Alyce Lomax owns shares of Starbucks, but holds no financial position in any of the other companies mentioned. The Fool has a disclosure policy.
