KISS Factor: Can Identify Stock Winners in the Consumer Space

BA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

What do Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Green Mountain Coffee Roasters (NASDAQ: GMCR)Netflix (NASDAQ: NFLX) and Whole Foods Market (NASDAQ: WFM) have in common?

(One) Answer: Using 'KISS' as a stock picking tool would have enabled you to possibly identify these big winners early in the game.

The acronym KISS -- Keep it Simple Stupid -- was coined by Kelly Johnson, lead engineer at Lockheed, when giving instructions to staff responsible for designing jets. Johnson’s aim was to design jets so that mechanics could quickly and easily maintain them by using just a basic set of tools. So while KISS may seem to refer to design, it’s a much larger concept – it simplifies the end users’ lives and often saves time.  

Certainly mechanics – or their employers, who are paying them – aren’t the only ones who appreciate life being simplified. Most of us do, especially in today’s busy and often hectic world. 

KISS Products, Kissable Stocks

While delighting end users is an obvious trait of successful consumer products companies, simplifying the end users’ lives seems a far less obvious one.

When reviewing top 10 or 20 performing type stock lists, I’ve noticed that many of the top consumer stocks are of companies that make products or provide services that simplify users’ lives. Thus, when considering a stock in the consumer space, you may want to ask yourself: Does the company’s product or service help simplify the users’ lives?

Apple and Amazon were the #1 and #7 top performing S&P 500 stocks for the decade ending in 2011 returning 3,758% and 1,588%, respectively. Green Mountain and Netflix also appeared on similar top 10 and top 20 lists before each of their considerable drops in 2011.

Here's the current 10-year performance picture:

AAPL data by YCharts

KISS Apple Style: Keep It Simple Source (of entertainment)

Apple was founded in the 1970s. However, the company and its stock mostly floundered until Steve Jobs returned and introduced the iPod in the early 2000s. The iPod first ignited the stock, with the iPhone (2007) and iPad (2010) turbo-charging it.

The iPod, iPhone and iPad simplified life for many users. We’ll just consider the first two here.

The iPod was significantly less clunky than Sony’s Walkman, the first hit product in the portable music player category. Thus, it simplified portability. The major simplification involved the use of digital media together with Apple’s iTunes store. This set-up vastly simplified the purchasing, storage and accessing of music.

The iPhone was not the first smartphone. Research in Motion’s BlackBerry had been out for years. However, the BlackBerry’s target market was business users, not consumers. Consumers were spending a good portion of their online computer time doing such basic things as checking and sending email, checking weather forecasts and sport scores. The introduction of the iPhone allowed people to do these and other things where screen size isn’t an issue at their convenience; they no longer had to be tethered to a computer.  

The iPhone also replaced the need for other gadgets -- such as digital cameras and GPS devices – for many users. Having to lug around fewer gadgets is a big simplification.

KISS Amazon Style: Keep It Simple Shopper!

Though Amazon is involved in many things -- Kindle e-readers, video streaming, cloud computing services, to name a few -- its core business is its online shopping. Consumers can purchase just about anything from scores of retailers on its site.

You go to one site for just about all your shopping needs – peruse, order, done. How much simpler can it get?

As compared to shopping at brick-and-mortar stores: No driving, no parking, no crowds, no lines.

As compared to non-brick-and-mortar shopping pre-Amazon:  If you wanted to shop online in the Internet’s early days, there were meager offerings, as it was costly for merchants to set up their own sites. To shop, you'd go to Merchant's 1 site, find what you need, and order. Then do the same with Merchant 2, 3, 4…through X. If you shop online now, but use different sites, you do the same thing.

I LOVE being able to buy diverse items such as a small appliance, a personal care item and a book (my last Amazon order) all on one site! I know I have much company.

KISS Green Mountain Style: Keep It Simple Sipper!

Green Mountain’s Keurig single-serve coffee brewer greatly simplified the coffee-making process for many consumers. This is especially true in households where there are multiple coffee drinkers each preferring different brands, people part of a caffeinated-decaf couple (which should be grounds – pun intended – for divorce!), and for households that don’t consume much coffee.

No mucky coffee that sits in the pot too long. Easier clean-up. No measuring even. Can it get any simpler?

Of course, the price per cup is significantly higher than brewing using even top-quality beans or grounds. However, as with many things, some will always be willing to kiss extra dollars away for products that help them KISS.   

KISS Netflix Style: Keep It Simple (Video) Spectator!

Blockbuster and other video rental stores were great when they first opened. Not only was renting a movie an enjoyable novelty, but it was also sometimes fun to peruse the selections to choose a movie. However, returning the videos was just another chore.

Enter Netflix in the late 90s with its DVD rentals by mail. Netflix’s system simplified the rental process by allowing customers to choose their selections online, and receive and return the rentals by mail. It eliminated the need for two trips.

This simplification was the big reason for the market shift from store rentals to DVDs by mail in the early 2000s. Likewise, simplification is largely driving the current market shift to online video streaming. In 2011, total (not just Netflix) video streaming revenue increased over 500% in the U.S.

KISS Whole Foods Style: Keep It Simple (Healthy) Shopper!

Prior to Whole Foods, standard grocery shopping and buying fresh or organic foods were two stops for many -- a grocery store and a specialty store or farmers' market.

For those who take good quality nutritional supplements, tack on a third stop at a health foods store (or a third "to-do" -- order online). Grocery store supplements are almost always loaded with fillers and additives, which might work with some, but surely not many who are buying organic foods. 

What was two or three trips or to-dos for many is now one. Life simplified.  

Takeaway

When considering a stock in the consumer space, ask yourself: Does the company’s product or service not only delight, but also help simplify users’ lives?


BAMcKenna has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Netflix, and Whole Foods Market and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters. Motley Fool newsletter services recommend Apple, Amazon.com, Green Mountain Coffee Roasters, Netflix, and Whole Foods Market. 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!

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