The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment... and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."
But, please, make no mistake -- "Stock Madness 2005" is a GAME!
Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn... and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.
Kinder Morgan
Houston
, Texas
$76.91
52-week low-high: $56.85-$81.57
$9.68 billion market cap
By Rich Smith
When you invest in a company, nothing's more important than knowing that management has your interests at heart. That's why today, I'm tendering up gas pipeliner Kinder Morgan as one company you can place your faith, and your money, in with full confidence.
Kinder Morgan is a company run by manager-owners. Owners like namesake Richard Kinder, who took the reins at Kinder Morgan seven years ago for an annual salary of. wait for it. $1. And no, I'm not misplacing any decimals there. One buck. Eight bits. That's all.
No raises. No bonuses. No stock options. What you see with Richard Kinder is what you get.
And what you get is a CEO who's in the same boat as you. The man owns 20% of this $10 billion company. So when he does well -- when Kinder Morgan does well -- you, the shareholder do well, um, as well.
For that reason, you can count on Kinder Morgan paying a hefty dividend, and increasing it regularly. Right now, the stock pays about 3.5% -- nearly twice the S&P 500 average. You can also expect the company to continue growing, expanding, becoming more profitable over time -- earning the profits necessary to fund that dividend.
Sure, I understand the lure of Starbucks. That company, too, has trounced the market for years. But investing in Starbucks can be a lonely business. About the only people buying its stock these days are. the people who don't run Starbucks. Insiders, it seems, just don't have a lot of confidence in the stock and own a measly 2%. Sure, they're happy to take the stock options -- and sell them. But they just aren't that interested in hanging around in the same boat as you, the shareholder.
Fool contributor Rich Smith has no position, short or long, in either company mentioned in this article.
Starbucks
Seattle
, Wash.
$52.17
52-week low-high: $36.51-$64.26
$20.9 billion market cap
By Nathan Parmelee
In the spirit of the NCAA tournament, let's start with an analogy. If I were starting a basketball team and could have any player from history to start my team, I'd take Larry Bird. No second thoughts. Jordan was spectacular, but Larry Legend is my man. From high school, to college, and on to the pros Larry was a success at every level and had an immediate impact on every team he joined.
Using the same reasoning, Starbucks is my choice as portfolio captain. Sure, you can argue for Berkshire Hathaway
Success is often fleeting, particularly among companies and investments, because competitors are drawn to the bright lights of success like a moth to flame. Still, I have a tough time naming a true competitive threat to Starbucks. Eventually a Peet's
Starbucks' success is often the only knock on the company. Bedeviled by a high P/E that comes with all-star performance, Starbucks has never been a value stock. Nope, if you wanted to add Starbucks to your team in the past you had to be willing to wait and snap up shares when they occasionally enter a reasonable price territory.
As for my competition, Kinder Morgan, it's a solid company with a fascinating history. In the end, Kinder Morgan is an excellent role-player that consistently delivers solid returns, but Starbucks is the rare player that can talk big and put up the performance to match.
Fool contributor Nathan Parmelee actually did build his portfolio around Starbucks and owns shares today.
Rebuttal
Yes, it's true that Starbucks insider ownership is low, but it's been that way for a long time and with good reason. Chairman Howard Schultz sold a large portion of the company to raise expansion funds before going public. What Starbucks has to show for it is a store ownership model that allows it to have complete control over its brand and the customer experience, and a history of very low debt levels that allowed cash from operations to be plowed into further expansion.
To close, it's worth noting that Kinder Morgan is a great company and worth a serious look to all investors, but if I had to pick one, I'm drawn to the Siren's call. -- N.P.
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