The folks at StreetAuthority delight in lists of “bests” — best stocks for 2011, best stocks for 2012, best stocks to hold forever, we’ve looked at several of them over the years.
And now, what we’re being teased with by these folks are “WGB” investments … which, in case you don’t have the patience to sit through their ad, means “World’s Greatest Businesses” … so that tells you we’re probably following on with the theme that’s been espoused by Warren Buffett for decades, and more recently re-adopted by lots of newsletter writers: Buy big, safe, dominant companies who are so large and well-run, and in such strong positions with large “moats” around their business that can survive anything and pay dividends.
So it’s hard to respond to that with anything but a “sure, why not?”
And, of course, a “so which WGB’s you talking about, anyhow?”
Well, here’s a bit of the ad to give you a taste of how they’re teasing this idea:
“The Public ‘WGB Retirement Fund’ That’s Turned $55,000 into $123,200 in Only Three Years
“This ‘fund’ of just 12 stocks has beaten the market for years, nearly tripling the S&P in the process…
“Now you have the chance to buy into these 12 stocks, just as many of America’s largest pension funds already have…
“I doubt you’ve ever heard of the ‘WGB Retirement Fund.’ However, my research tells me it could be the only investment you’ll need to beat the market for years to come.
“Over the past decade, this ‘fund’ made of just 12 stocks has done something remarkable…
“In the most volatile period since the Great Depression, these stocks have seemingly ignored every “hiccup” the market has been through.
“In the past year, the stocks within the ‘WGB Retirement Fund’ have gained an average of 29.4%… compared to just 5.4% for the S&P.”
And then, after spitting out some big names that have “bought” the “WGB Retirement Fund” (Warren Buffett, Goldman Sachs, major pension funds), he does “come clean” and tell us that, yes, of course it’s not actually a “fund” …
“I call this opportunity the ‘WGB Retirement Fund,’ but the truth is, it’s not a traditional fund at all.
“This fund doesn’t trade on a stock exchange. And if you call your broker, they won’t be able to find the shares.
“Instead, the ‘WGB Retirement Fund’ is a group of 12 stocks that, when bought together — just like a fund would — offer a way to potentially beat the market without the need to worry about things like inflation or deflation… bear markets or recessions… flash-crashes or rising interest rates.
“In fact, you can buy all 12 of these stocks today and put them to work for your retirement portfolio right now.
“So what’s so special about these 12 stocks?
“Put simply, I call them the World’s Greatest Businesses –or ‘WGB’ for short…”
So that’s the pitch — and it’s an eminently sensible one for most folks, though I know many Gumshoe readers would rather be traders than long-term investors … he summarizes it thus:
“The key to creating wealth in the stock market — and growing that wealth — is to simply buy great businesses and let these stocks grow year after year.”
And, naturally, they think that their “WGB” stocks are the best ones to buy. As has become custom for the ads of this kind, they give a couple ideas away as “freebies” and then hint and tease about the rest of ’em … in the interest of time, since we’re somewhat concerned that the power and/or internet access might disappear at any moment here on the north side of Hurricane Sandy, we’ll keep it brief and just try to name the stocks for you so you can investigate them on your own (and, of course, share your comments and opinions below).
The ones they tell us for free are Coca Cola (KO), which you certainly know as the world’s dominant beverage company and a major holding of Buffett’s Berkshire Hathaway, Brookfield Infrastructure Partners (BIP), a partnership that owns infrastructure assets like toll roads, pipelines and port facilities, and Starbucks (SBUX), which you almost certainly know unless you live in Borneo (StreetAuthority sees them having another leg of growth as they build their packaged goods business, and some folks are excited about their new Verismo home machine). BIP has gotten a bit pricey for my blood but owns great assets, KO will probably continue to be a “steady eddie” with gains or losses of 20% in a year being the exception and a nicely growing dividend, and SBUX is more of a “growth at a reasonable price” play after the shares have finally dropped and given up most of their gains over the past year or so.
The ones they don’t disclose? Let’s see if we can name them:
“World’s Greatest Business #3 is a special “toll” company with nearly a billion users around the world… and $2.5 trillion in transactions per year.
“Although the company was founded in 1966, investors couldn’t buy a stake until about five years ago.
“Since it’s gone public, the stock is up 857% thanks to its seemingly unstoppable growth. Maybe that’s what attracted the world’s greatest investor — Warren Buffett — and his investment team. His giant investment firm, Berkshire Hathaway (NYSE: BRK-B), bought a 216,000 share stake in this World’s Greatest Business last year. And then Berkshire “doubled down” — buying 189,000 more shares a few months later.
“Now this company is making a big splash in China… and buying back billions in stock.”
This one is another company you certainly know, fast-growing payment network owner MasterCard (MA). Tracy has touted them before as a “forever” stock as well, in articles like this one, and Berkshire Hathaway does own a stake — though it wasn’t Warren Buffett making that buy, it was Todd Combs, one of the new investment managers brought in by Buffett to help him invest Berkshire’s prodigious cash flow and float … and to build an investing “bench” for Buffett’s inevitable (though probably not imminent) retirement.
“In my opinion, World’s Greatest Business #5 is one of the safest stocks on the planet, thanks to its enormous profitability and its giant cash horde.
“With annual net income of $6.5 billion, this company is more profitable than such well-known success stories as AT&T, American Express, and Bank of America… just to name a few. And at last count, this company held more than $48 billion in cash on its books. That amounts to over $9.00 per share… yet the stock trades for less than $20.”
Mongols travel in hordes, by the way, cash is socked away in hoards, but I make plenty of similar mistakes as we fly live without an editor here at Gumshoe HQ, so we’ll let that pass. The Thinkolator tells us that this is very likely Cisco Systems (CSCO), which does indeed have about $48 billion in cash on its books and is often touted out as a dominant-yet-still-cheap tech stock. They also carry some debt, incidentally, so the net cash is only about $32 billion, but that’s still a huge hoard for a company with a market cap of only about $90 billion. And yes, it’s almost $9 a share in cash for a stock that’s priced around $17.
The question for Cisco is how they can deploy that cash to keep their margins up in the face of competition in their core routing, network equipment and security businesses. People often dismiss the dominant player and want to pay up to buy the upstart competitors instead, but it’s usually the big guys who win — but, of course, we also have plenty of examples of big, cheap tech companies on both sides, those like IBM or Apple that continued to grow and saw their stock prices improve, and those like Xerox or Corning that got hit by competition or changing underlying businesses and just got cheaper, and those like Intel, probably the closest comparison, where the jury is still out. You can make your own call about Cisco, there’s certainly no lack of information.
“World’s Greatest Business #9 is making a fortune thanks to ‘The New American Energy Boom.’ This business owns more than 50,000 miles of pipelines used to carry natural gas and oil around the country. (That’s enough to circle the planet twice.)
“These pipelines are one-of-a-kind assets that generate enormous profits each year. Once a pipeline is built, it typically enjoys near-monopoly status, and it acts like a tollbooth, capturing a steady stream of income year-in and year-out as oil and gas flows through its pipelines.
“No wonder the business has increased its distribution 39 times since going public in 1998… and 30 consecutive times going back to 2004. In total, it has distributed nearly $2 billion in the past year — a tremendous amount of cash that shows it is dedicated to putting money in its investors’ pockets.”
Well, it’s now up to 32 consecutive quarterly distribution increases since 2004, but this is one of the MLPs that gets teased and written about quite a bit — Enterprise Products Partners (EPD), one of the huge ones and with well over 50,000 miles of pipe and a distribution yield of just under 5% now. I wrote about them just last week here if you want to see some more blather on this point.
Moving right along …
“World’s Greatest Business #11 sells a product most of us use everyday. This company is so powerful that governments have even stepped in, accusing it of being a monopoly. But I don’t think that’s a bad thing… after all, I want to own companies that dominate their competition.
“That dominant position has led to some impressive results for investors.
“Since 2006 the company has bought back 17% of its shares outstanding… increased its dividend 100%… and increased its earnings per share nearly 120%.
“Right now this great business has amassed roughly $60 billion in cash… equaling almost 25% of the share price. With a balance sheet like this, investors who own this market-beating stock can certainly sleep well at night.”
This one, sez the Thinkolator, is almost certainly Microsoft (MSFT) — again, a company you undoubtedly know at least a little bit about. They have doubled the dividend since 2006 (more than doubled now, since the September announcement of a rise in the divvy — it’s currently 3.3%, looking forward). Lots of chatter about Microsoft, it’s a big fall for them as their Surface tablet tries to take some iPad share, their Windows 8 operating system rolls out to apparently pretty good demand, and they fight for relevancy in mobile devices as desktops and laptops have become the ugly stepsisters of tech in the last year or two.
“World’s Greatest Business #12 sells its recession-proof products in dozens of countries around the world. Pension funds in the United States and Canada own millions of dollars in this stock. It’s also owned by some of the largest money managers in the world. As we go to press, Fidelity owns nearly 6 million shares worth nearly $470 million, and Morgan Stanley owns about 2 million shares worth $140 million.
“It’s obvious why they like the stock. In just the past year the shares returned 37.3%… seven times the S&P’s 5.4% gain.”
Well … on this one I may need a bit more to feed to the Thinkolator — if Fidelity only owns $470 million worth of the stock then it’s not the likely candidates you might imagine like big health care or consumer goods companies like Johnson and Johnson (JNJ) or Colgate Palmolive (CL) … you could, for example, argue that CL has a recession-proof business around the world and has, depending on your dates, beaten the S&P by roughly the amount teased, but even just one of Fidelity’s mutual funds owns well over a billion dollars worth of CL shares, so that ain’t it. So until we get some more info on that one, we’ll leave it for you to guess … and those are the clues given, so many of the other stocks are probably included in the previous “forever stocks” lists touted by StreetAuthority — you can see the stocks they teased as best buys for 2012 here, and the forever stocks piece we did following their 2011 ad campaign was a two-parter, you can see those picks here and here.
The winds are swirling here on Gumshoe Mountain, so I’ll leave you with that — if you’re in the path of Sandy, stay safe and we’ll hopefully be back to share some more thoughts with you tomorrow.
Oh, yes, and in case anyone’s worried about my conflicts of interest today, I own shares of Berkshire Hathaway and Intel among those stocks noted above, and I think that’s it. Even assuming the markets reopen at some point soon, I won’t trade in any of the stocks covered for at least three days.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.