Jan 172013
 

I don’t drink coffee so it has never occurred to me before how big this industry is. Apparently after crude oil, coffee is the most sought commodity in the world. People drink over 500 billion cups of it each year. That’s a lot considering there’s only 7 billion people on this planet. Starbucks is a growing company that is expected to make $1.9 billion this year of after tax profit. The company is currently valued at $40.4 billion. Even if they stopped growing forever, anyone who bought the stock today can expect to make a 4.7% return on their investment ($1.9÷$40.4) Not much, but better than nothing! If you did the same calculations for Tim Hortons you would make about 6%.  This year I’m going to invest more in relatively defensive stocks that provide coffee, soft drinks, snacks, and other consumables that people can’t seem to get enough of.

Here’s my watch list for 2013. I plan to start buying some of these names soon.

Canadian Stocks

  • Canadian Utilities Limited (CU) *Electric, gas, and steam company*
  • Emera (EMA) *Another utilities company. This one has a great dividend growth record*
  • TransCanada (TRP) *Pipelines. Very recession proof*
  • Tim Hortons (THI) *Doughnuts and coffee, om nom nom ヽ( ̄д ̄;)ノ*
  • Ritchie Bros. Auctioneers (RBA) *A speculative way to invest in the auction business*
  • Bird Construction (BDT) *In construction and general contracting business. 4.9% dividend yield*
  • Canadian National Railway (CNR) *Railways. A great way to play the agricultural industry. Bill Gates is its largest shareholder owning over 10% of the entire company*
  • Canadian Pacific Railway (CP) *Another railway company. Good CEO. But currently overpriced*

 

US Stocks

  • The Walt Disney Company (DIS) *Steve Jobs’ estate is still making over $100 million a year from Disney’s dividends*
  • Coca-Cola Company (KO) *Buffett’s favorite company, enough said*
  • PepsiCo (PEP) *Very global. Very diversified. Maker of Pepsi, Frito Lay, Doritos, Tropicana, Quaker, and Gatorade. With a growing middle class with more disposable income in developing countries how can you possibly go wrong investing in Pepsi?*
  • Starbucks (SBUX) *Opening 3,000 new stores in the Americas by 2017. China to become 2nd largest market in 2014. This company is growing like a weed. Better get in sooner rather than later.*
  • Kimberly Clark (KMB) *They make the tissue you see in public washrooms everywhere. Very stable business model*
  • Johnson & Johnson (JNJ) *Increased its dividends for at least 25 consecutive years*

I already have shares in McDonald’s which owns the McCafé brand of coffee. Once I also buy Tim Hortons and Starbucks I’ll have part ownership to pretty much the entire quick service coffee business in Canada, haha (⌒▽⌒)and exposure to many other countries too. Canadians bought 1.5 billion cups of coffee last year, making it the nation’s most popular beverage. So every time someone buys a coffee from these lucrative chains a very small amount from that transaction will eventually be paid back to me either in dividends, or stock value 😀

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Random Useless Fact:

getting back into stocks and investing in coffee

source: CBC

 

Dec 112012
 

One myth about investing in the stock market or any other market where prices fluctuate is that it’s risky. But people who know how to value a stock understand that it doesn’t have to be risky if they buy the right stocks at the right time. Volatility and risk aren’t always correlated. Some companies with steady growth such as Enbridge have been pretty stable over the years.

Enbridge stock chart, volatility and risk

That’s not to say ENB is a good buy today because whether a stock is reasonably valued or not is another topic. But here’s a look now at Caterpillar below, who manufactures construction equipment, heavy machinery, etc.. Notice how the stock is more volatile over the same period as Enbridge.

Caterpillar stock chart, Volatility and Risk

But that doesn’t necessarily mean CAT is a riskier stock than ENB.  CAT is a more cyclical company so its Beta is suppose to be higher. What makes a company safe to invest in for myself is a positive trend of earnings growth, dividend growth, and industry expansion. Both companies have had stable dividend growth over the last decade meaning managers are confident about their company’s future performance. Both companies have also increased their profits over the years. Pipeline companies are looking to expand their pipes across Canada, and In Alberta alone the government has forecast there will be 114,000 jobs in the construction industry over the next decade (o.O) ENB and CAT are both in growing industries with growing demand for their products/services.  Stocks can vary in risk depending on what kind of business they are, but volatility doesn’t necessarily mean risk. It just means at some point in time, there might be  a good opportunity to buy the stock at a great value 😉

Here’s what the Oracle had to say on the subject….

“Volatility does not measure risk. Past volatility is not a measure of risk. It’s nice math, but it’s wrong. If a farm in Nebraska used to sell for $2,000 per acre, and now it sells for $600 per acre, investment theory would say that the beta of farms has gone up, and than they are more risky than before. If you tell that to people, they’ll say that that’s crazy. But farms don’t trade daily the way stocks do. Since stock prices jiggle around, finance professors have translated that into these investment theories. It can be risky to be in some businesses. Risk is not knowing what you’re doing. If you know who you’re dealing with, and know the price you should pay, then you’re not dealing with a lot of risk. We have invested in a lot of sectors that have high betas. The development of beta has been useful to people who want careers in teaching.”
– Warren Buffett

Beta – The measure of volatility. Higher beta = bigger fluctuations in price. The overall market has a Beta of 1. If a stock is said to have a Beta of 1.5 then that means it will be 50% more volatile than the market.