Good Returns in 2013

By Jon Quast - March 21, 2013 | Tickers: BWLD, SODA, SBUX | 0 Comments

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Michael Scott: "Yeah, I was thinking about doing some gambling myself. You know, just a little bit of money. Maybe doubling it, and then doubling it seven more times. I don't know, kind of just for fun. I was thinking, do you have tips, or ideas about sure things. Like a boxer who is going to throw the big fight, you know...who do I call about that?"

Kevin: "The mob."

I think we all are aware of the power of doubling.  To get to $1 million, all you have to do is double your money 20 times.  That sounds extremely easy, doesn't it?  There were plenty of stocks that doubled in price last year.  It sounds even easier when you think about the fact that some stocks are 3 and 4-baggers.  Type "10-bagger" into your search engine and see what comes up.

I think that the quote above from The Office illustrates that an investment that doubles is hard to come by.  But if doubling is hard, then that causes me to ask myself, "what is a reasonable return?"

A Lesson From a Great

Peter Lynch is one of the greats when it comes to investing.  Let's zoom in on his best 13 year stretch: 1977-1990.  During this stretch, Mr. Lynch had an average annual return of 29%.

Yep, "just" 29%.  During that time he had stocks that were multi-baggers to be sure.  He also had some duds.  Now, if one of the all-time greats can't break into the 30% territory during his prime, perhaps we shouldn't get our hopes up for too much more than that.

Really, any investor should be ecstatic with a 20% yearly return.  And I think that some likely candidates are a lot closer to you than you think.  Good businesses like Starbucks (NASDAQ: SBUX), Buffalo Wild Wings (NASDAQ: BWLD), and Sodastream International (NASDAQ: SODA) all have a good chance of earning you these kind of returns.

SBUX data by YCharts

All three of these companies have been making steady gains the last few years, but there is no reason to think that it will stop in 2013.

Starbucks

Starbucks is a company hitting perfect stride right now.  They are making great moves to please their customers, and it's paying off.  The Starbucks loyalty program "My Starbucks Rewards" is expected to double this year to 9 million members.  That means 80,000 new people a week are deciding that they like Starbucks enough to be loyal to it.  And these loyal customers are going to boost revenue this year.

But it's not just about coffee.  Starbucks has tea with its Teavana chain.  Starbucks has juice with its Evolution Fresh chain.  Starbucks has a bakery with La Boulange name brand.  Starbucks has...farming?  All these things bode well for the coffee giant.  Teavana is expected to grow from 300 locations to 1,000.  Evolution Fresh is to double their location count this year to end up with 8,000.  La Boulange only has its products in 400 locations right now, but by year end they are hoping to have their products in 2,500 stores.  And farming?  Well, Starbucks now has a coffee farm in Costa Rica, where they will be testing out some new coffees, and also be working to develop solutions for diseases that kill coffee plants.  

Buffalo Wild Wings

Buffalo Wild Wings is continually becoming the go-to destination for good food to eat during the game.  This chain, just 220 locations 10 years ago, expects to open their 1,000th store this year.  With that comes one bold prediction from management: 20% net earnings growth.

That is a big number.  But to be clear, this isn't Rex Ryan predicting the Jets are going to the Super Bowl--this is management looking at real numbers and deciding that 20% is well within their grasp.  With the restaurant count set to grow over 10% this year, I think it is more than just possible - it is probable.

One big thing in Buffalo Wild Wings' favor in 2013 is chicken wing prices.  The price for chicken wings was up 70% last year due to the mega-drought.  The restaurant chain picked up the difference for a little while, but then they had to raise menu prices.  This year, the price of chicken wings should come back down, and margins should increase accordingly.

Sodastream International

Sodastream International is often accused of being a fad.  Like bread makers and Furbys, they won't be around for very long.  But how many fads do you know that have been gaining momentum for 20 years?  It's new to us in the States, but this company has a long history of helping people make carbonated beverages at home.

SODA Revenue TTM data by YCharts

Unfortunately we only have financial data since the 2010 IPO, but as you can see revenue has been growing at a fantastic clip.  Perhaps even more impressive is that revenue in the United States nearly doubled in the most recent quarter.  And they were able to sell one million machines.  The machines open the door for recurring profits down the line, as people buy CO2 cartridges and syrup flavors.  

2013 is looking to be a good year for all three of these companies.  They may not be a 10-bagger, or even a 2-bagger, but I believe all three companies are poised for solid gains that will help your portfolio compete with Mr. Lynch's.

Why It's Important

I believe that investors are often willing to take unnecessary risk with their portfolio in the hopes of hitting an out-of-the-park home run.  And I can relate.  Two years ago, I took a risk with a speculative investment that netted me over 400%.  But this success caused me to take similar unnecessary risks this past year with my portfolio.  While preparing my income taxes I reviewed my investing year and discovered something that surprised me.  Through a series of bad investments, I had lost the 400% I had earned two years ago.

The adrenaline of finding the next Wal-Mart or the next Apple, sometimes causes the investor to change investing strategy and miss the good returns of your Starbucks and Buffalo Wild Wings.  But having a reasonable idea of what a successful investment is can change that, and make you a more level-headed investor.

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