The iPhone and the Twinkie

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

Last week Hostess announced that it was seeking to liquidate its business and as the result nearly 18,000 people will lose their jobs. That figure represents about 10% of the jobs created the previous month in the entire country. Very disturbing news. Two steps forward. One step back.

Immediately there were reports of panic buying and hoarding of some of the company's products. Grocery store shelves normally stocked with Wonder bread, Ding Dongs and Ho Ho's were suddenly empty. Several news articles I read indicated that the most famous Hostess product, the Twinkie, was being auctioned off at astronomical prices. Starting prices for bids ranged up to $10,000.

I never realized that the sugary snack had such a fanatical following.

I do know of other products that were in such high demand that people would wait in lines for hours or even days to purchase them.

Recently people camped out in New York City and other cities when the new iPhone went on sale. Apple (NASDAQ: AAPL) has produced products with a cult-like following. One of the co-founders of the company, Steve Wozniak, even flew to Australia to be one of the first in line to buy it. Amazing.

And it is selling boatloads of them and related devices. Projections for 2012 are that over 155 million iPhones and iPads will be sold. There are waits of up to three weeks for new devices. 

If you had recognized that it wasn't just a fad and invested in Apple you would have been rewarded with a boatload of returns over the years too. Since Nov. 2001, when the iPod first went on sale Apple stock has returned over 5,000%.

Another company that created a following, although maybe not as crazy as Apple's, is Starbucks (NASDAQ: SBUX). Why would anyone buy a $5 coffee there instead of going to the convenience store and pay less than half as much? Part of the reason is the overall experience. While you sip your latte you can browse the Internet on your iPhone or iPad by accessing free Wi-Fi or sit outside a Starbucks location to people-watch.

Starbucks created a great brand by working hard to make it seem larger than life. The stock, including dividends, has significantly outperformed the S&P500 recently. 

Another company with cult-like status is Harley-Davidson (NYSE: HOG). It has appealed to the rebel in many people who obsess about speeding down the open road with the Blockhead engine under them and the wind blowing in their face. Some of us were born to be wild. 

Harley, although having relatively high debt levels and pension obligations, has turned out to be a decent investment, more than quadrupling the performance of the overall market over the last two years. 

On the other side of the coin are companies which failed to maintain their status.

One of them, Research In Motion Limited (NASDAQ: BBRY), was done in by the success of others. The Blackberry's market share was reduced by the iPhone and other devices. The company's stock has lost most of its value as revenue and earnings have plummeted. 

Apple may be at the beginning of experiencing the same thing right now as Samsung has captured the overall # 1 marketshare of smartphones today, a far cry from just three years ago when it was in 5th place among the major manufacturers. Will the Galaxy S III soon have a cult following?   

So the question many investors have as they scramble to buy their favorite Hostess product: will the iPhone turn out to be like the Twinkie?

 

 

 

 


Mathman6577 owns shares of Apple. The Motley Fool owns shares of Apple and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Apple and Starbucks. 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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