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Investing In Companies That Sell Products/Services That Are Ubiquitous
Posted by: Jason Fieber (IP Logged)
Date: October 16, 2013 07:08AM
In my last article: Investing In Companies That Sell Products/Services That Even Frugal People UseI was attempting to show readers how I reconcile my own personal frugality with my investments in high quality companies that need to sell products and/or services in order to be profitable and share that profitability with me in the form of dividends. By extension, I was also attempting to display why I'm such a fan of many of these companies: their products and/or services are so wonderful that even consumers who pride themselves on spending little end up in many of these companies' vortexes.
But why do consumers spend their hard earned cash on these products and services?
Many of the companies that make up my Freedom Fund are international in scope, and have operations all over the world. So you have people with different means, cultures, needs and beliefs patronizing these companies. How does success translate from one location to another?
I believe one huge advantage that many of the companies I invest in is the rather ubiquitous nature of their products and/or services. This isn't just to say that these companies have operations in more than one country. Rather, I mean that I love investing in companies that are so visible, that offer consumers such conspicuous means in which to consume what they offer that we, as human beings, almost have no choice but to give in and buy what they're selling.
As always, I like to provide personal experience. That's because I believe the companies I invest in are more than income statements and annual reports; they are organizations that provide us all real, tangible benefits. For instance, I can actually go out and buy a cheeseburger that McDonald's Corporation (MCD)sells me, put it in my mouth and taste it. That's the kind of feedback that a cash flow statement doesn't provide. And that feedback is relatively easy to come by since Mickey D's is ubiquitously located in every decently-sized city in America, and many other locations throughout the world.
Recently I decided to drink less soda. As previously discussed, one of my goals for 2013 is to weigh 185 pounds or less by the end of the year. Due to such, I've cut back on my soda intake (to my chagrin) and have started to instead drink water. Unfortunately, I can't stand the taste of plain water. So I have started to drink flavored water. What I did was switch from drinking cans of Pepsi to drinking Propel flavored water. What do these two products have in common? They're both manufactured and distributed by PepsiCo, Inc. (PEP). Their products are so ubiquitous that I almost can't avoid them. If I were to stop drinking Propel flavored water and switch to Dasani flavored water I'd be drinking a product made by The Coca-Cola Company (KO). This puts me in a precarious position, which is one where many of these companies like me.
Go to your local grocery store and look around you. Walk down many of the aisles and you'll see that a few companies absolutely dominate the store. The snack aisle has bags of Lay's, Fritos, Doritos, Cheetos, Tositos (and some other products that end in "os"). These are all made by PepsiCo, Inc. (PEP). Check out the frozen food aisle and you'll likely run into many frozen pizzas and prepacked dinners manufactured byNestle SA (NSRGY). Take a turn over to the breakfast aisle and you'll see it's completely dominated byKellogg Company (K) and General Mills, Inc. (GIS). You get the idea.
Take a look around you and see how many people these days have cell phones. Scratch that. Instead try to find someone who doesn't have a cell phone. You'll have better luck. What do these people have in common? Well they have to pay a carrier a fee in order to access their networks and make phone calls. And guess who most of these people are paying? Either Verizon Communications Inc. (VZ) or AT&T Inc. (T). Why is that? Well, these two companies combine for over a 60% market share of the U.S. wireless market. That's over 200 million connections. Ubiquitous enough for you?
If you're like just about everyone else in the U.S., you have some type of personal transportation. And odds are pretty strong that it requires fuel. You can pass up the Mobil station (XOM), but you'll likely only be quickly coming upon a Shell (RDS.B) or Chevron (CVX) station. You'll have a hard time not purchasing gas from one of the energy supermajor companies.
Need to purchase household supplies? Again, you'll almost have to go out of your way to not purchase products that The Procter & Gamble Company (PG), The Clorox Co. (CLX), Kimberly Clark Corp. (KMB), Unliver Plc (UL) or Colgate-Palmolive Company (CL) sell.
For instance, my girlfriend and I were at Wal-Mart (WMT) the other day shopping and we needed to pick up some cleaning supplies. Now usually I go out of my way to make sure I'm purchasing products that are manufactured and sold by companies I have a direct interest in as a shareholder. But my girlfriend insisted on getting some all-purpose cleaner that was on sale. She picked up a bottle of Fabuloso, which was a good 20% cheaper than the next product in the same size package. I figured I had just witnessed my girlfriend buy a store-brand product, a microcosm of consumer decisions worldwide every single day. What hope is there for these premium brands when price is the only motivating factor? Well, it turns out after taking a quick look at the label that Fabuloso is manufactured by Colgate-Palmolive. Ubiquitous.
How about you? Invest in companies that offer ubiquitous products and/or services?
Full Disclosure: Long MCD, PEP, KO, T, XOM, RDS.B, CVX, PG
Thanks for reading.
Photo Credit: nokhoog_buchachon/FreeDigitalPhotos.net
Stocks Discussed: MCD, PEP, KO, T, XOM, RDS.B, CVX, PG,