A tale of two companies
On a recent Sunday morning, I took my daughter out to Starbucks
Why was one business overflowing with customers, while another had to close up shop, presumably because it was unable to make a go of it in the neighborhood? While it would be unwise to jump to any conclusions based on just one anecdote, it's fair to say that these are two companies going in opposite directions. What are the lessons here for investors?
The danger of Adam Sandler
I'll be blunt. Starbucks is an outstanding business, while Blockbuster is a poor one. Now, Blockbuster might be an interesting investment at the current price, but it remains a troubled company. Revenue is falling, stores are closing, and its policies are pretty much indecipherable. They say late fees have been abolished, but you still need to return your DVDs within a week or two, or you end up owning them. I now own, for example, an embarrassingly bad Adam Sandler movie (it was my son's choice!) that will serve as a reminder of my tardiness. I think it's fair to say that any company that forces Adam Sandler movies on its customers has problems.
Blockbuster has had its clock cleaned by rival Netflix
Starbucks, on the other hand, is one of the great success stories of the past decade. Tom Gardner, one of the lead advisors for Motley Fool Stock Advisor, succinctly summed this company up as follows: "This is a powerhouse brand with high loyalty among customers. The balance sheet is solid. And the high growth rate projections are plausible because of the opportunity in China."
Tom's brother David, the other lead advisor for Stock Advisor, is equally bullish on this one and has described it as "the quintessential 'untouchable' company." Both brothers recognize some concerns over valuation, but they conclude that greatness doesn't come cheap.
Some of us are looking at the stars
Both Tom and David have a proven record of investing in remarkable companies. Back in the mid-1990s, they delivered market-beating returns for their Rule Breaker and Rule Maker Portfolios by investing in outstanding businesses such as McAfee
This strategy has paid off in their Stock Advisor investment service. They've picked some disappointing stocks along the way -- Possis Medical
John Reeves owns shares in Netflix. He did have memberships with both Netflix and Blockbuster, but he will probably no longer frequent the latter store now that his local one is closed. Starbucks and Netflix are Stock Advisor recommendations. McAfee, Possis Medical, and Krispy Kreme are former Stock Advisor picks. Intel is an Inside Value recommendation. The Motley Fool has a disclosure policy.