It was when I purchased my house that I first heard of “The Starbucks Effect.”
The idea is easy to understand: a Starbucks near your house raises the value of your property. CBS News reported on the results of a Harvard study showing that when a Starbucks is introduced into a zip code, home values nearby increase by 0.5% within a year.
Starbucks isn’t the only one. You can find studies showing similar effects around Trader Joe’s and Whole Foods.
Tracking the correlation can be a bit of a chicken-or-egg question (BTW, the answer is the egg, but that’s another essay). Good retailers spot growing housing markets and open stores nearby.
At the same time, proximity to one of these retailers boosts home selling prices too because people are willing to pay a premium to be near their preferred brands.
And all this illustrates one of our favorite investing themes.
Let me explain….
We’re big believers in investing in products that are habit-forming.
It’s pretty easy to see why when you look at the history of the market.
If you look at the list of the 20 best-performing large U.S. stocks from 1957 through 2003 that kept their general corporate structure intact, you’ll note many of them sold branded consumer products.
Phillip Morris is at the top of the list. It was the top-performing large U.S. stock from 1957 to 2003. It sold cigarettes.
Coca-Cola and Pepsi Co. are on the list. They sold soda. Hershey Foods and Tootsie Roll are on the list. They sold chocolate and sugar.
These businesses produced more than 13% annual gains for decades. You won’t find anything better. Most companies can’t sustain 13% annual returns for more than five years. The businesses mentioned sustained those returns for decades. The reason they did so well is simple…
They sold habit-forming products.
When people form a habit around a product, it goes a long way toward ensuring repeat business. People get used to certain brands and they grow resistant to switching.
That resistance means they will happily continue buying the product even if the price increases a little. Both of these qualities help companies sustain sales growth and healthy profit margins.
For a recent example of this strategy, look to the coffee chain Starbucks. It’s one of the great success stories of American business.
From 1995 to 2006, Starbuck’s market value advanced more than 2,000%. Starbucks was very good at selling high quality coffee with a great brand, and shareholders made a fortune.
But don’t get the idea that the big gains for Starbucks stock are over. Neil George, editor of Profitable Investing, recommended buying Starbucks in early February 2018, and has since seen a lift of 38% in the stock price.
In fact, the coffee maker’s stock hit a new 52-week high yesterday. The chart below reflects the SBUX performance since Neil recommended buying it.
To be sure, SBUX had a tumultuous summer. Concerns over growth in China had a lot of people bailing out. But if you stuck with it, as Neil advised, you’re sitting on a nice profit.
Why is the stock doing so well? Growth and more growth to help people feed their Starbucks coffee habit. Here is Neil’s summary from earlier this year.
While there are nearly 30,000 stores around the world, there are still more coming. About half are owned by the company, with the rest under contract. And while there is arguably a saturation in the US market, in China, where coffee is challenging tea for market share, the company is pushing to get to 6,000 stores over the next four years.
Plus, as more and more folks are spending money on “experiences” rather than items to consume, Starbucks is moving to roll out more of its large roaster stores, which come across as a sort of brewpub for coffee fans, around the world.
And if experience isn’t what customers want, then there’s the speed and convenience through its new push with Uber and Alibaba (BABA) to deliver coffee right to your home or office. In the US alone, the company is geared to have 2,000 of its stores equipped for delivery in short order.
At this new high price, Neil is telling his Profitable Investing subscribers to only buy Starbucks on the dips.
But coffee isn’t even our favorite habit-forming trend for investors.
If you want to understand how to make money from habit-forming trends, make sure and read this recent Forbes story on Daniel Lubetzky, the founder of Kind Health Snacks, maker of the highly popular Kind Bars.
Kind rakes in an estimated $800 million in annual sales. Forbes estimates that the company is worth $2.9 billion, which makes Lubetzky’s share of the company worth over a billion dollars.
Lubetsky has found huge success by selling high-quality, habit-forming consumer goods that have such great brands people are willing to pay up for them.
Just like Starbucks….or Whole Foods….
That strategy is key to understanding the appeal of so many marijuana stocks.
And Matt McCall is putting that strategy into action with his Investment Opportunities service. Matt identified the marijuana trend years ago. Now, he is finding the stocks that are best poised to take advantage of this once-in-a-generation opportunity to build wealth.
Late last year, Matt started his Cannabis Cash Calendar campaign where he picks the new leaders in this global trend – the massively successful private companies that are fueling this surging market and now going public,
Many trade at just pennies a share, or maybe a few dollars. On Dec. 4, Matt made a specific call for one of these companies – Elixinol Global Limited (ELLXF).
Elixinol is widely regarded as one of the most influential CBD brands in the world. The business is divided into three units: dietary supplements, hemp foods, and medicinal cannabis. The first two make consumer products, which have huge upside potential. The third is in the pharmaceuticals sector.
The dietary supplement group is known as Elixinol USA. It generated 84% of the company’s sales in the first half of 2018. It sells 30 different products, from capsules to skin cream to dog treats.
Below is a chart with the stock’s performance since Matt’s call. The stock is up 128%!
Here is Matt’s latest update on the stock from earlier this month.
Elixinol Global Limited (ELLXF) reported strong fiscal 2018 results last week, with total revenue increasing 121% to $26.3 million. Its hemp-CBD business division accounted for $23 million of that, up an impressive 141% over the previous year. That strength is exactly why this stock was our first Cannabis Cash Calendar recommendation.
On top of expanding its brand awareness in the quarter, the company also launched its CBD-based SATIVA skin care line in the United States.
Matt believes Elixinol, and one other stock in his portfolio, have the potential to jump to a major U.S. stock exchange and sign a key deal with a national retailer. I can’t reveal the other stock out of respect for his paid subscribers, but Matt believes both have big long-term potential.
CBD products have amazing potential to be the next big habit-forming consumer trend. One estimate puts the size of the potential market at $22 billion by 2022. As Jeff mentioned Monday, even CVS has stuck a toe in the water by carrying CBD-infused lotions in a limited number of stories. It’s a small start but access to a retailer that size could be a huge catalyst for CBD sales.
And luxury brand Barneys New York recently announced plans to sell CBD-infused products and cannabis accessories in a new “luxury” head shop called The High End.
If you aren’t in the marijuana market yet, there is still time. Matt will reveal his next pick next week. Click here to see how to get that pick on April 4.
Retailers such as Starbucks and Whole Foods could begin to carry CBD-infused products, such as gummies or health bars or drinks, and the trend will only get stronger.
Regardless, investing in habit-forming trends is a winning strategy and we will keep you informed of the next steps in this market.
To a richer life…
Luis Hernandez, Managing Editor
and the research team at InvestorPlace.com
