If James Bond Bought Stocks
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If Bond, James Bond, had a portfolio, and why wouldn't someone so urbane not have one to supplement his civil servant salary, what would he buy?
If anyone could do some proper due diligence it would be Bond. Would he be as much of a risk taker in his portfolio as in his work persona?
Shaken, not stirred
We all know James' fascination with the vodka martini, but his favorite drink was the Vesper and the recipe was debuted in Casino Royale as a mixture of Gordon's gin, vodka, Kina Lillet (a French aperitif with quinine), and lemon peel. He called this concoction a Vesper after beautiful Bond girl, Vesper Lynd. Which company makes these ingredients for the Vesper and the vodka martini?
None other than Diageo (NYSE: DEO), the world's largest spirits company, owns Gordon's gin and Smirnoff and Ciroc vodkas. Diageo trades at a forward P/E of 16.25 with a 1.90% yield. It's also headquartered in Bond's home base, London, but operates in 180 countries.
The company has fourteen strategic premium brands of which six are number one brands in their categories globally: Johnnie Walker scotch, Jose Cuervo tequila, Crown Royal Canadian whisky, Smirnoff premium vodka, Guiness stout, and Baileys liqueur. Most of its eight other strategic brands are number two in specific markets.
On its innovation webcast on May 9, the company noted that the new markets they are aggressively targeting are women (the Bond girls will be so pleased!), the global emerging middle class, and premium consumers. How will they do it... confectionery vodka in the U.S., like caramel and whipped cream flavors to attract women, premium limited edition Johnnie Walker collections like their Explorers Club, and more use of cans for ales and stouts.
More interesting is that the innovation R&D budget is only 0.01% of sales while accounting for 50% of Diageo's growth for the last five years. The company's Long Term Science and Technology program has entered into a collaboration with DuPont's R&D division. While it's still hush-hush, some exciting developments should come soon.
"We see ourselves as selling objects of desire. Like Cars. Clothes. Perfume. Watches. What you drive, what you wear and what you drink says something about you," as Chief Marketing Officer Andy Fennell said on the innovation webcast. Aspirational is the keyword for Diageo, as is the Bond lifestyle, and that's why Diageo is a buy going forward.
The man with the golden gun
Fifty years since the first film (soon up to 24 in the franchise earning $4 billion overall) and sixty years since the first Ian Fleming novel, Bond is still dapper as ever. Bond doesn't just drink and seduce women; he also drives cool cars, wears bespoke suits, gambles, and wields firearms. His service weapon is well known as the Walther PPK, a German pistol manufactured in the U.S. under license of Carl Walther Sportwaffen by Smith & Wesson (NASDAQ: SWHC).
Smith & Wesson has pulled back 20% from its 52-week high of $11.25, although the stock had quite a run in the last two years, up 40% in the last year alone. It is nowhere close to its all time highs of $20 in 2007, however. Its floor would be below $5 historically. Considered a member of the defense industry, it sells not just to individuals but also to the military, governments, and law enforcement.
Several Motley Fools caution that the individual gun market is close to saturation but the stock is trading at a forward P/E of 8.41 with a 0.26 PEG. A 19.70% short interest seems worrisome. However, gun stocks are heavily shorted after every gun tragedy as institutions pull out. They then ramp higher as nervous citizens buy and hoard firearms before another gun control debate.
Smith & Wesson is lightly covered with only four analysts, but they give a median price target of $11.50, for some 20% upside. While Smith & Wesson won't enjoy the 190% EPS growth it had this last year, analysts still predict a 30% five year growth rate.
Diamonds are forever
Bond is so smooth that he rarely has to gift his women, but he does appreciate a fine men's watch and if he ever settled with one lady, he would surely present her with the signature robin's egg blue box from Tiffany (NYSE: TIF). In "Diamonds Are Forever", one Bond girl is called Tiffany Case.
Asked about his diamond expertise, Bond replies, "They cut glass, suggest marriages, and I suppose it has replaced the dog as girl's best friend." Bond would certainly know more than that if he owned jeweler Tiffany.
He'd know it is one of the ultimate aspirational high end plays that is trading at a forward P/E of 19.62 with a 1.70% yield. The company is moving into new emerging markets (including Asia), opening a store in Red Square in Moscow, one of his old stomping grounds.Tiffany is becoming more attractive as a takeover target speculation (note: a takeover has been rumored for several years. Louis Vuitton Moet Hennessey and Richemont have been bandied about as possible buyers).
Just as famed "Breakfast at Tiffany's" party girl Holly Golightly found Tiffany's such a "friendly" place, so too do shareholders after a recent 6% bump in yield after a dozen increases in almost as many years.
The company surprised with a bright and shiny Q1 in May of a 9.3% increase in global sales. Simply stunning numbers from Asia added up to an adjusted $0.70 EPS beating analysts' expected $0.53. Although sales in North America were weak and are expected to remain flat, both Russia and Asia were mentioned on the call as strong growth drivers.
If Bond bought Tiffany, he would keep an eye on strength in world markets, ours and Asia's specifically, as perceived wealth effect tends to move the stock.
For your eyes only
As Bond memorably says, "In my business you prepare for the unexpected." Two global aspirational companies with yield take the edge off a harrowing career of derring-do for Bond. A more speculative Smith & Wesson appeals to that sense of risk that Bond embodies. These are three names you should think twice before you say Dr. No.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Diageo plc (ADR). 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!