Almost two years ago, I wrote about seven stocks to buy whose products and services were in high demand.
What made the story unique is that each company recommended had the word “Brands” as part of their corporate name. At the time, Finviz.com said 34 stocks listed in the United States were meeting this specific criteria. Today, it appears there are 38.
The previous seven stocks have generally done so-so.
To make my life more complicated, the three stocks to buy for the 2023 edition of the “Brands” portfolio will be completely new names. In addition, if possible, I will try to come up with three companies in three different sectors.
At the end of the day, this is more an exercise of fun rather than serious stock selection. However, like all stock selections, quality still matters. I won’t be opting for money-losing businesses, no matter how potentially lucrative.
Here’s to the 2023 edition of the “Brands” portfolio.
Stocks to Buy for Investors Building a ‘Brands’ Portfolio: Yum! Brands (YUM)
Yum! Brands (NYSE:YUM) is the largest of the three names, with a market cap of $35.5 billion. Owner of the Taco Bell, KFC, Pizza Hut and Habit Burger brands, Yum has grown to 28,500 restaurants worldwide, generating $15.8 billion in Q2 2023 system sales, excluding currency.
Highlights of the second quarter include 13% growth in system sales and a 9% increase in same-store sales. It opened 1,025 net new units in the second quarter. Meanwhile, its operating profit was $573 million in the quarter, 3.4% higher than a year earlier. Its operating margin increased by 10 basis points to 34.0%.
The KFC same-store sales were the quarter’s highlight, up 13%, three-fold higher than Taco Bell and Pizza Hut. KFC’s China and U.S. businesses accounted for 40% of its $8.3 billion system sales. The brand’s China system sales increased by 32% due to the removal of pandemic restrictions. In Q2 2023, KFC opened 600 gross new restaurants across 60 countries.
KFC exited its Russia business in the second quarter by selling it to Smart Service Ltd.
Yum’s free cash flow in the first six months of 2023 was $556 million, 31% higher than a year ago. On an annualized basis, its free cash flow of $1.11 billion is a free cash flow yield of 2.4% [based on enterprise value of $46.6 billion].
While that’s below the 4% yield I usually look for, the strength of its brands makes it a solid buy for the long haul.
Fortune Brands Innovations (FBIN)
I said I wouldn’t include one of my selections from my 2021 article.
However, Fortune Brands Innovations (NYSE:FBIN) became the new name of Fortune Brands Home & Security (FBHS) in December 2022 after the company spun off its cabinet business into a separately traded public company, MasterBrand (NYSE:MBC). Fortune Brands shareholders received one share of FBC for every share held in FBHS.
FBIN stock is up 14% since the separation, while MBC’s gained 22%. So far, it’s been a winning move by the former FBHS management and board.
As for the existing Innovations business, it completed the acquisition of Assa Abloy’s (OTCMKTS:ASAZY) Emtek and Schaub luxury door and cabinet hardware business in June, along with the Swedish company’s U.S. and Canadian Yale and August residential locks business.
After tax benefits, Fortune paid $700 million for the business, or about 7.8 times the business’s adjusted earnings before interest, taxes, depreciation and amortization. However, that multiple is before possible synergies of $90 million at the midpoint of its projections. Fortune expects the business to generate at least $500 million in sales and $0.45 a share in earnings within 36 months.
With the addition of the Emtek, Schaub, Yale and August brands, it has some of the strongest names, including Moen, House of Rohl, Thermatru, MasterLock, SentrySafe and more.
It continues to be an excellent long-term buy and one of the best stocks to buy.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY), the embattled Canadian cannabis producer, has had a bit of a resurgence in the past month, at least if you’re judging by its share price. TLRY stock is up more than 26% throughout the past month. It now trades more than $3 for the first time since February.
CEO Irwin Simon has taken the company on a buying spree that significantly diversifies its revenues beyond cannabis. Between 2020 and 2022, it acquired five craft beverage brands, including Sweetwater Brewing, for $300 million. The moves put it in ninth spot on the Brewers Association’s 2022 list of beer sales volume in the U.S.
Finally, in August, it bought eight craft beer brands from Anheuser-Busch InBev (NYSE:BUD) for $85 million. The brands acquired include Shock Top, Breckenridge Brewery and Redhook Brewing.
The deal triples its beer sales volume, vaulting it into fifth or possibly even fourth place on the Brewers Association’s annual ranking by volume.
With a “revenue now, more revenue later” business strategy, Tilray is better positioned to deal with the U.S. cannabis regulatory situation.
Here in Canada, where I live, it announced on Aug. 18 that it was buying the 57.5% of Truss Beverage Co. that it didn’t already own. Tilray’s purchase gives it complete control over cannabis beverage brands XMG, Mollo, House of Terpenes, and Little Victory.
Truss controls approximately 36% of the Canadian cannabis beverage market. It’s another move to solidify its grip on the entire spectrum of products sold in the Canadian cannabis market.
While Tilray remains a work in progress, its future is stronger today because of Simon’s moves. This and the other companies we mentioned are all stellar stocks to buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
