When I buy stocks, I like to buy brands that I know and trust. I want my portfolio to be full of companies that I do business with and that I know are going to be around for the long haul. Buying strong brands is a great way to achieve both of those goals. Today, we're going to look at three great companies and figure out which one is the best buy right now. These are all household names, and you can be sure that having them in your portfolio won't cost you any sleep.
The only thing keeping America running
First off, let's all give a warm round of applause for caffeine. I love the stuff, and so does the rest of the world. So it's no surprise that Starbucks (Nasdaq: SBUX) is going to make my list of solid brands. Starbucks changed the way the world thought about coffee when it started selling cups for over a buck. Then it went and built an empire off that idea. Now you can't throw a ceramic mug without it crashing through the window of some cafe, but Starbucks continues to rule the sector.
So far in 2012, it's purchased a bakery, announced the launch of its own single-brew machines, and launched a new cold-drinks line that uses green coffee beans. Last quarter, it grew revenue by 13% off the back of same-store sales growth of 6%. It also opened 231 new stores across the globe, and brought home earnings per share of $0.43, up 19%. In other words, it nailed down some solid growth.
But that's all in the past. Why should investors still be hungry for Starbucks? I've got two main reasons, apart from the strong brand: leadership and product expansion. First, when I'm looking at a company that helps me sleep, I want to know that it's in good hands. Since his return in 2008, Howard Schultz has been an excellent shepherd of the company, and was named Fortune's Businessperson of the Year in 2011. I trust Schultz.
Starbucks also has a great deal of diversification in store. Along with an expanded food menu stemming from the bakery addition, it will be launching its Verismo system, placing it in direct competition with Green Mountain Coffee Roasters (Nasdaq: GMCR). While Starbucks isn't making any promises on revenue, the Verismo is going to be available for the holidays, and is sure to help the coffee giant in fiscal 2013.
The only thing keeping America running
See how this subhead is becoming a running joke? -- sorry. Some of the best brands come from companies that a cat with an iPod could run, and Nike (NYSE: NKE) is that kind of company. The swoosh purveyor is a case study in how to build a simple product into a brand, and Nike has continued to run with that success since it began. After an earnings miss earlier this year, the stock dropped and has continued to trade well under $100. But there is no reason to count Nike out.
In that earnings miss, analysts were looking for earnings per share of $1.37, while Nike delivered only $1.17. That's a pretty wide miss, but much of the shortfall came down to a compression at the gross level. Gross margins dropped to 43% due mainly to an increase in raw material costs. I'm confident that Nike can adjust pricing to manage those costs over the long run. One of the many benefits of a strong brand is the ability to increase prices to meet these sorts of challenges.
While the drop this year shouldn't be referred to as a sale, I think it's fair to say that Nike is fairly priced. With a forward P/E of 16, it's considerably more expensive than shoemaker Deckers Outdoor (Nasdaq: DECK), but the long-term stability is more than worth the premium. Deckers has been battling operational issues, with operating income falling to -$29 million even as sales rose last quarter. While $15 million in operating expenses can be attributed to its purchase of Sanuk, it just doesn't look good. Nike doesn't have those sorts of issues, and that makes me happy and helps me sleep. I'll take Nike.
The only thing keeping America running
To round this out, I'm throwing my hat in with Microsoft (Nasdaq: MSFT), which keeps America's computers running. Microsoft just announced a revision to its logo, but the brand isn't going anywhere. While I'm not a fan of monopolies, I love the idea of investing in products that people use, even if they complain about them. Microsoft is so good that no matter how imperfect it is, it's still better than any other alternative.
While Microsoft recently took a $6.2 billion hit writing off its unsuccessful aQuantive deal, it had no real effect on the operations of the business. I'm not going to lose sleep over an accounting move that probably should have happened a while ago. I am excited about the Windows Surface tablet, though. While Microsoft probably isn't going to turn into the must-have hardware giant that Apple has become, the Surface should entice other companies to start making more Windows-friendly devices, and that's a great thing. Microsoft's combination of strong operations and business-critical products makes it easy to include in this lineup.
The bottom line
Clearly, this is a very specific take on investing -- mine. I want companies that I understand and that let me live my life while offering me a solid return. Brand is a great place to start when looking for those sorts of businesses.
In particular, Microsoft and Green Mountain have some interesting dynamics above and beyond their respective branding issues. You can learn more in the Fool's premium reports on Microsoft and Green Mountain, both of which include a year's worth of free updates. Get started today.
