Buy What You Know, An Easy to Follow Investing Philosophy
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Peter Lynch is the one that made the idea, buy what you know, popular. It's so simple, buy the products that you understand or buy the stores you shop at more frequently. I thought about this theory this morning during my regular routine and decided to look at who made the products that I use most frequently, I was quite surprised.
It was at the breakfast table eating a bowl of Cheerios that the thought of Lynch's statement came to me. Cheerios are one of many breakfast brands made by General Mills (NYSE: GIS). After seeing the General Mills logo on the side of the box I went back into the kitchen to see how many other products I had from the company and to my surprise, it was a lot.
There were the Cheerios, some Wheaties, a box of Bisquick and various ready to bake Pillsbury products. I didn't buy these products because they were made by General Mills, they just happen to be the best brands in their categories. After checking the website I saw many more popular home brands that were made by this massive company.
I didn't expect to see General Mills dominating the bathroom, but I had an inkling that Procter & Gamble (NYSE: PG) might have more than the lions share; they did. Old Spice and Head & Shoulders were found in the shower, both well known P&G brands. Outside of the shower I found myself using Crest toothpaste, which is made by P&G, I even used that toothpaste on an Oral-B toothbrush.
Was it over? Far from it, I knew that my Gillette razor was a P&G product, I thought that would be the last. It wasn't, I had no idea that The Art of Shaving was a P&G subsidiary who were providing me with my grooming products.
After the morning routine it seems that products become a little more diversified. Comcast (NASDAQ: CMCSA) has a good foothold in the homes of many where they provide cable TV, internet, phone services and even the NBC fleet of channels.
Buy What You Know!
Are you one of the incredibly rare people that don't touch a single one of these brands on a daily basis? If so, look at your own life, look at what you use the most, look at the companies that make those things and then make do your due diligence to make sure that the company is right for your portfolio.
You'll want to make sure that the companies you know have some great brands that you love and that others love. If you're the only one thats buying the Cheerios off of the store shelf then you may want to take a bit of a different look at General Mills.
Let's take a quick look at how the companies above stack up!
General Mills, Procter & Gamble and Comcast are three very different companies so we can't really compare them against each other, but rather we can take a look at the companies individually and see if there are any benefits to investing.
Let's look at General Mills first. The company, as mentioned above, has plenty of well known food brands that stock the shelves of many American homes. General Mills is a consumer staple, and a very secure one at that. The company has annual revenues of $16.6 billion that are made up from selling packaged food around the world. General Mills sees a three-year average sales growth rate of 4.6% while EPS over the same time has put up a 7.4% average. General Mills sees this growth while being an industry leader and simultaneously paying a monstrous dividend that yields 3.16%.
Procter & Gamble, like General Mills, sells consumer staples, and lots of them. P&G has 50 brands that lead their categories and 25 of those brands bring in more than a billion dollars each per year. One of the great things about P&G is that the company has paid a dividend for 122 years now and they don't plan on stopping any time soon. They've increased the dividend for the last 56 years, every single year, at an annual rate of 9.5%, that's not too bad either.
Comcast is in a different boat, they are a services firm and the largest multichannel provider in the United States with just over 22 million basic TV subscribers. Comcast is an incredibly diverse firm in the media space and they continue to push forward, even with declining subscribers to the cable service. Comcast pays a dividend, although it isn't as high as their counterparts in this article. The yield on the dividend is 1.7% and that dividend has been growing quite nicely over the last decade.
|Revenue Growth (5yr)||14.22%||0.86%||4.5%|
|EPS Growth (5yr)||19.48%||1.59%||8.56%|
Bolded are the numbers that present the best option above. As you can see, Comcast is a favorite of the analysts and is managing to post double digit growth. P&G and General Mills have lower growth but larger yields. Both P&G and General Mills are definitely worth a buy for a conservative portfolio.
Ash1402 has no position in any stocks mentioned. The Motley Fool recommends The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!