by Will Ashworth | May 14, 2012 9:42 am
The Fortune 500 was released on May 7. Heading the list is Exxon Mobil (NYSE:XOM), followed by Wal-Mart (NYSE:WMT) and Chevron (NYSE:CVX). All the way down at 17 is Apple (NASDAQ:AAPL), the current leader by market capitalization.
In addition to releasing its annual list, Fortune came up with some secondary lists, including a group of 20 companies that are also on its annual Best Companies To Work For ranking. Of this list, here are my three choices for best stocks to own:
I don’t think there’s an easier selection than Starbucks (NASDAQ:SBUX). Among this group of 20 companies, only Starbucks is also on Fortune‘s list of list of 20 biggest stock gainers of 2011.
Up 45.3% last year, Starbucks’ biggest move was acquiring Evolution Fresh juices for $30 million in November. Although Starbucks is considered a coffee company, it’s really a lifestyle business that understands consumer goods. Pushing the brand further into the consumers’ consciousness through the opening of new stores and increased distribution in grocery stores can only enhance the company’s reputation as a leader in the marketing and sale of beverages.
Adding to that reputation is its push into beer and wine. Starting with Seattle, the company will be rolling out beer and wine menus in Los Angeles, Chicago and Atlanta by the end of 2012. For all those uptight people who fear the introduction of beer and wine into the stores, remember that Starbucks is simply meeting the requests of customers. They wouldn’t be doing this if there wasn’t a demand for it.
Besides, have you ever been in a Starbucks at 8:30 in the evening? Many are either closed or empty. Adding beer and wine helps smooth out daily revenue flow, making the stores even more productive and profitable. It might not work, but it’s worth a try. Howard Schultz definitely knows what he’s doing.
It seems like forever ago that Whole Foods (NASDAQ:WFM) founder and co-CEO John Mackey was caught posting anonymously on Whole Foods’ Yahoo! Finance message board. That was 2007. Then, in 2009, Mackey opposed President Obama’s health-care reform, suggesting that if people simply ate better, health-care costs would take care of themselves. Another firestorm of controversy. Neither, however, seems to have harmed the company’s ability to grow and make money.
In Whole Foods’ second quarter, ended April 8, same-store sales increased by 9.5%, 170 basis points higher than the same quarter in 2011. What’s even more remarkable is the same-store sales growth of stores less than two years old, which jumped a whopping 21.6%. The youngest stores averaged a return on invested capital of 18%, with the total of 304 stores averaging a 49% return on invested capital, which means Whole Foods is paying off its investment in each store in approximately two years. In the second quarter of last year, its ROIC was 38%, a sign that the stores continue to get more efficient, leading to greater profitability.
Deutsche Bank analyst Charles Grom sums it up: “To me, that’s the real story here. This company is opening up stores more disciplined than they ever have in the past, and I think that’s a sign that Walter Robb [the WFM’s other co-CEO) really knows how he’s running the company at this point in time, relative to five or six years ago.” I live in Toronto, which has a population of more than 5 million. Yet there are only three stores here. Boulder, which has about 2% of that population, has four stores. So there’s plenty of growth left in both Canada and the U.S., but the company’s taking its time and I find that refreshing. Up 38% in 2011, WFM is a stock to stick in a drawer and leave for a long time.
For my final selection, I was going to pick the company whose stock is trading the furthest from its five-year high — Devon Energy (NYSE:DVN) — until I came across an insurance company whose fortunes have rebounded in recent months. Aflac (NYSE:AFL) announced strong first-quarter results on April 25, including surprise news that its Japanese sales should increase by 10% in 2012, in stark contrast with earlier guidance indicating that revenues would decline.
Raymond James analyst Steven Schwartz raised his 2012 earnings guidance to $6.48 in 2012 and $6.70 in 2013. Even better, the analyst raised his 12-month price target to $57 from $53 as a result of the stellar results. As of the May 9 closing price of $43.09, AFL is 36.6% below its five-year high. Of this group of 20, AFL is third from the bottom. For that reason and the fact it generates 80% of its revenues in Japan, I’m in.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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