Investing In Companies That Sell Products/Services That Are Ubiquitous

In my last article: Investing In Companies That Sell Products/Services That Even Frugal People Use I 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 by Nestle SA (NSRGY). Take a turn over to the breakfast aisle and you’ll see it’s completely dominated by Kellogg 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

Comments

  1. says

    It really shouldn’t be a surprise that many “off-brand” or “store-brand” items are made by the companies in which you’ve mentioned. It is pretty common as they can grab additional market share from both the frugal and non-frugal shoppers alike.

    Going back to my comment on your last post, it really isn’t all that complicated to invest over the course of a lifetime, especially when one considers the wealth of “investment” knowledge we obtain just based on our daily purchases.

    • says

      w2r,

      I agree. Investing doesn’t need to be complicated, and for most people it would be instead preferable that it be as simple as possible. I consider myself a relatively smart guy, but there are probably quite a few businesses out there that are way past my comprehension level. This relates back to Buffett’s encouragement to remain within your circle of competence.

      Best wishes!

  2. says

    I like how you just describe a lot of people normal day. We all go grocery shopping and have to put gas in our car that carry the grocery back to our house. As we are in the car we call someone to tell them that we got grocery.

    I invest in a few of the company you named. I am still working on adding some more like VZ, PEP, GIS, CL. :)

    • says

      FFdividend,

      Yep! There’s billions of consumers out there going about their day and purchasing products/services that many of the companies we invest in provide because it’s simply part of everyday life. One eats, drinks, uses transportation, consumes energy and the like. The fact that these high quality companies profit from everyday life is wonderful. The fact that they share it with the rest of us is even better! :)

      Take care.

  3. Spoonman says

    This article complements the previous one very well. “…That’s the kind of feedback that a cash flow statement doesn’t provide.” Yup, right on! That’s how I feel when I see Waste Management truck swing by and pick up our garbage, I hear cha-ching sound in my head.

    Not only are the companies you listed ubiquitous, but they also manage to find ways of anticipating what you will need and then develop a product that fits those needs exceedingly well. That’s the sort of thing that makes me sleep well at night, knowing that these companies are working non-stop on my behalf.

    • says

      Spoonman,

      Great point there. The R&D that these companies use to predict future trends and come out with products to meet those trends if fabulous. Some stuff never goes out of style – toilet paper, laundry detergent, toothpaste. But the fact that there is indeed innovation still left in the tank (Tide Pods) is wonderful and also allows me to sleep well at night.

      Best regards.

    • says

      Anonymous,

      Hmm. I’m not sure about that one. The odds are better that you’re using your camera phone and you’re storing your pics on your phone and then uploading them directly to your computer. Unfortunately, Kodak missed the digital revolution. Innovation cuts both ways.

      Cheers!

    • says

      Anonymous,

      I would disagree that Kodak disappeared “overnight”. In fact, their decline started around the turn of the century and has been going on ever since. There are many cases of companies with quick and steep declines, but Kodak is just not one of them.

      Best wishes.

  4. says

    It’s absolutely true DM,
    I just published a post this morning that was very similar. The reason these consumer staples and retail behemoths have historically made such good investments is because they are purchased year in and year out by consumers and have such phenomenal brand power. Is it any wonder that investing superstars like Warren Buffett and Ron Baron maintain large positions in these companies?!
    -Bryan

    • says

      Bryan,

      Absolutely. I love the power behind brand names. Of course, if it was all just a gimmick it wouldn’t matter very much. But brand names become brand names because they serve up a high quality product and/or service at a price that allows it to maintain strong margins and grow at an attractive rate over time. The premium quality begets a premium price and it goes ’round and ’round.

      Take care!

  5. says

    No self respectful mother would wash their baby’s hair with anything but “No More Tears Baby Shampoo”…ka Ching goes the register for JNJ shareholders many times a day!

    • says

      Took2Summit,

      IBM was quite compelling today after that big drop. I don’t know if it’s far enough below my cost basis to get me to buy more, however. I don’t plan on it being a very big position, but if it drops much more from here I may have to add.

      I wasn’t aware of the SWK drop. That’s not one I follow. However, it still looks a bit pricey even after the drop, no?

      Best regards.

    • says

      SWK is actually quite cheap. their current P/E is 24 but they are only earning $3.03 a share this year. this is due to some acquisitions and some other legacy costs. Their EPS next year is expected to come in at $6.33 which would give them a PE of 11.75…very attractive PE for a company with 13% EPS growth forecast next 5 years and 46 years of raising dividends. If they arent on your radar they should be after this 2 day drop!

    • says

      Took2Summit,

      Interesting information there! I took a quick look and it appears you’re right. EPS has been temporarily driven down, but it looks set to bounce back next year. S&P had earnings next year lower than what you have, but at any rate they’re cheaper than they look.

      Although, what do you think of the recent dividend growth slowing? Just a temporary blip based on lower earnings?

      I’ll have to take a pass after the pop today. Another good drop on this one and I’d be interested. Right now IBM is looking mighty interesting, although I really didn’t intend for it to be much more than 2% of my portfolio.

      Best regards!

  6. gibor says

    Jason, …and after shopping, I’d like to take a smoke :) (PM/MO) or take a pill to get rid of headache JNJ, PFE… I’m genearlly bullish on pharma , people live longer and require more amd more medications… also developing countries will buy more and more drugs…. btw, nice dividend hike for ABT – more than 50%..
    On the other hand evryone should be cautious, take for example Eastman Kodak ! If was great company with fabulous products. Where is Kodak now>?! Who could’ve anticipate it 15 years ago?
    Or US banks, like C or BAC! And everyone needs a bank account, mortgage, credit card…..

  7. says

    Ahh… I didn’t know that. I’ll need to check the label of all these store brand products we have to see who made them. Our dividend portfolio is made up of many of these companies and I think they will continue to do well in the years to come.

    • says

      retireby40,

      I hope we’re both served very well by many of these high quality companies. I take solace in knowing that many of us (me included) have a hard time not buying their products and/or services. They’re just so commonplace and so necessary that you’re compelled to purchase. That makes for an exciting future!

      Best regards.

  8. says

    I love owning Ubiquitous companies. I just wish they went on sale more often! Most of these seem to always be fair to overvalued. I guess that’s the price you pay for quality.

    • says

      fiveoh,

      I’m with you. It’s a catch-22 with many of these companies. They’re high quality, and typically have secular earnings growth but those benefits come with the drawback of being rarely cheap.

      Hopefully we see some cheaper prices soon!

      Take care.

  9. says

    This is generally great advice. The main thing I struggle with is when it’s also a company I hate (Comcast, for example). But their moat is incredible and cashflow is always excellent. Why can’t everything be perfect?

    • says

      Pretired Nick,

      That’s a conundrum there. I don’t know if I could invest in a company I despised. I don’t know if I despise Comcast, but there is significant room for improvement in many areas. I wish things could be perfect, but alas we live in reality. :)

      Best regards.

  10. Anonymous says

    you are doing great I hope that one day you wished had bought a mini van moved to the suburbs and took the kids to game practice and spend Saturday at the field watching a game

  11. says

    Good article…and a concept that I have been circling around for a few weeks trying to work out a post on. For me, it is a lot easier to invest in something that I am familiar with through their products or services, than for something I am not. I might even give these companies the “benefit of the doubt” and be willing to buy with less scrutiny. After all, I’m already giving them $50, $100, or $200 per month depending on the company…why not get some back :)

    • says

      Mark,

      Great perspective there! It’s a lot easier buying that Big Mac meal or buying the Crest toothpaste when you know you’re getting some of your purchase price back via dividends. I definitely think about that whenever I make purchases. It makes it a little easier for my frugal mind to accept buying things occasionally when I look at it like that.

      Best wishes!

  12. Anonymous says

    Another “ubiquitous” company you might have a look at is the WD-40 Company (WDFC). The old saw about being able to fix anything with WD-40 is surprisingly true; they’ve been expanding into foreign markets in recent years and their dividend track record is excellent.

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