HOW CHEVRON, QUALCOMM AND STARBUCKS CAN BRING US WORLD PEACE
This article also appears on Forbes
There are 10 million different methods of determining whether a company is ripe for an investment. You can look at a variety of different measures of value until your brain begins throbbing. You can dissect a balance sheet until you dream of numbers dancing in mini-skirts. You can measure industry trends. You can look at price momentum.
Future growth projections are another way. Follow your favorite fund manager into a stock, otherwise known as being a 13F zombie. The list goes on.
For longer-term investments that don’t involve any measure of hero worship or emotion, I prefer to look at two simple factors: Do macro-trends within an industry, society or economically favor the company? Is the price action confirming what I perceive the macro-trend to be?
Without favorable price action, I expect that my macro theory is flawed. This comes as a result of the understanding the financial markets hate me, you and every single person who attempts to pee in its beloved ocean of free flowing cash. When the realization that you are hated by the entity you are pursuing for profit becomes the core of your existence within the financial markets, you approach things from a very different point of view. I’ll have more on that another time.
There are three large/mega-cap companies that I am particularly fond of for investment over a long-term basis. These are all companies that are well positioned within the macro sphere for their own individual reasons. They have all been experiencing significant price momentum, confirming that all is well. In no particular order:
Chevron (CVX): The only reason you have not to own CVX stock is if you are in the camp that believes the global economy is going to grind to a halt over the next few years and all progress we are seeing will suddenly stop. If you are somewhat optimistic or even agnostic about the future of global economy, then CVX is a must to own.
CVX is at the forefront of the global trend towards expansion at any cost. There is a real movement amongst developing countries to cultivate a middle class. A movement to create infrastructure, economy, industry and jobs. This used to be the mantra of the United States and Western Europe. While we still aspire to be these things, the truth of the matter is that Brazil, India, China and a whole host of smaller countries are doing a much better job than we are at expanding, building and creating.
Energy is a key component in this onslaught of growth and desire to play catch up. CVX is a key player in the energy sector. It’s a company that has been around for well more than 100 years. They are as diversified an energy company as you could ever want. It is invested in a variety of different energy initiatives in everywhere from China to Australia to Kazakhstan. It is investing very heavily in natural gas throughout the globe. Natural gas is a sector of energy that I think will see extraordinary growth over the long-term. It also has its hand in oil sands, solar, fuel cells and a variety of other alternative energy initiatives worldwide.
The primary concern with an investment in Chevron would be a retreat in oil prices. We are closer to a long-term low in oil here than we are any kind of high. From a pure price analysis standpoint it seems as if oil is carving out a new price range for itself that will turn our previous expectations of “normal” oil prices on its head. I think that $75 crude oil in five years will be as absurd a thought as $500 gold is right now. There are a ton of fundamental reasons to believe that the price trend for oil will continue forward in this current decade and beyond. I will review that another time.
Icing on the cake: You have a 3% dividend yield. CVX is one of the rare companies that have been paying an increasing dividend for more than two decades now. A sign of the company’s stability, vision and dominant position in the global economy.
From a price action perspective, the market is confirming all of the positive fundamentals as CVX is sitting right near an all-time high.
Qualcomm (QCOM): I believe that certain trends within technology, such as love for the products of a particular company, can lead to poor investment decisions being made. But love for QCOM’s products is something that none of us really need to worry about. This is due to the fact that while you probably do love QCOM, you don’t know it because you never see their product.
When you and your colleagues at work are gathered around your iPhone laughing at the Chinese Backstreet Boys on YouTube, it’s QCOM that is making that possible. When you are downloading a large file to your Android device, QCOM is there too. Your iPad 2? A QCOM chipset. The other tablets out there that aren’t iPads? QCOM chipsets.
QCOM dominates the wireless space across all past, present and future initiatives. They are an enormous presence in countries that are the powerhouses of global growth such as China and India. As the revolution towards smartphones and tablets just begins to grow in these countries, QCOM will be a dominant force in making that growth possible.
While the consumer appetite towards a brand of phone or tablet may shift with the wind, the technology that powers these devices will not. QCOM has an airtight patent portfolio for 3G devices. A patent portfolio that has become increasingly profitable for the company as consumers demand faster wireless data speeds for their “smart” devices.
From a price action perspective, QCOM is at a 10+ year high and looks poised to explode to new all-time highs over the coming years.
Starbucks (SBUX): I go to different Starbucks at the same times during the week and the weekend. There has rarely been a time that I haven’t seen the same group of people there, joined by a new group of people. I see the guy who never ties his tie when he walks in. There is a guy who talks to every barista and does it very loudly. There is the tattooed gentleman who has a truck so high that I wonder how many Mini Cooper drivers he scares on a daily basis. There are the group of girls who stare at the tattooed guy with the big truck, either because they are wondering the same thing I am or because they like his tattoos and big truck. There is the motorcycle guy who always makes friends with other motorcycle guys he sees there. An unspoken code of mandatory friendship seems to exist amongst motorcycle guys that makes me want to get a motorcycle.
These same people have developed the same habit I have. This is followed by new groups of people who seem to be developing the same habit. The people in China aren’t going to be happy with Lucky Coffee House or even The New Lucky Coffee House. Nope, they want their Starbucks on every corner in major cities just like the United States. Starbucks recently cemented plans to open 1,500 stores in China by 2015.
You want more in the way of global aspirations? How about a deal just signed with one the largest companies in India to open retail outlets and sell more Indian coffee worldwide. Brazil? They acquired 100% controlling interest in Starbucks Brazil last year. What does that mean? Aggressive expansion is coming.
Out of the three names mentioned here, SBUX is the most likely to be effected by aggressive competitors. It is subject to the fickle nature of the consumer and the evolving nature of their tastes and budgets. Starbucks does have the brand name that will afford it stability, however. The international consumer, especially, will be much more prone towards going with an established brand name as opposed to a Dunkin Donuts or Caribou Coffee.
SBUX generates a significant amount of cash flow. It managed to clean itself up with the reduction and consolidation moves that took place as the stock price was plummeting during 2007-2008. What has emerged is a lean, experienced brand name powerhouse that is ready to bring the same aggressive business plan that made it into the company it is today to the world stage.
From a price action perspective, SBUX is sitting right below its all-time high. It is in a terrific position to break out to all-time highs here shortly.
The ability of individuals and corporations around the world to have access to reasonably priced and abundant energy resources. The ability to have constant, portable access to all the information complied by human beings over all of our known existence at the touch of a button, while watching squirrels dance on YouTube. And being able to have a vanilla latte no matter where you are on Earth, will bring us closer to world peace than any treaty, protest or governmental policy ever has.
