5 Minutes, 3 Brand Updates, Consumer Focused.
Could there be a better core than the global consumption theme?
Global consumer spending is 60% of the world’s $100 trillion GDP or $60 trillion per year.
- Spotify – A major positive inflection has arrived.
- Tesla – Playing chess while legacy auto brands play checkers.
- Costco – They just keep finding reasons for customers to stay loyal.
Important thesis: Buying leading companies operating in vital consumer spending industries is a timeless investment approach. Being opportunistic and buying these great assets when the market puts them on sale (like today) allows your recovery time to shorten. These are not opinions; they are commonsense.
Consider this: the S&P 500 Index has generated an annualized return of roughly 8-10% over the long-term, leading companies serving important industries should, in theory, generate 300bps+ more over long periods of time. That’s what history has shown where leading brands are concerned. Here’s some proof showing a partial list of our current holdings, since each brand has been a public company:
Nike: +16.1% annual vs 9.75% S&P 500 Microsoft: +23.3% vs +9.9% S&P 500
Lululemon: +22.4% vs 9.9% Meta (Facebook): +20.5% vs +13.4%
Amazon: +31.2% vs 8.4% Live Nation: +12.2% vs 9.3%
Apple: +20.3% vs 9.9% Eli Lilly: +14.4% vs 9.9%
Google: +23.2% vs 9.6% Costco: +13.6% vs 9.9%
LVMH: +19.9% vs 13.8% Visa: +20.6% vs 10.2%
Blackstone: +13.1% vs 8.91% KKR: +19.3% vs 13.1%
Apollo Global: +22% vs 12.1% Mercado Libre: +26.6% vs 9.2%
The above listed returns are from Ycharts.
Blue Chip Brands Update:
- Spotify (SPOT): The leading music and audio streaming brand globally.
- Operates in 180 markets, and in 70 languages.
- Spotify owns roughly 35% of the global market share and is gaining momentum.
- We feel confident they will reach 1 billion+ subscribers over time.
- FY 2018, total monthly active users was 207M, today, 551M.
- Yet the stock today is ~$154 versus ~$140 in February 2019.
- FY 2018 premium paying subscribers was 96M, today it’s 220M.
- Low customer churn – the music category is a key favorite for consumers.
- Strong pricing power because customers love the brand and category.
- Operating efficiencies to drive better and sustainable profitability.
- Implementing multiple AI-focused initiatives to enhance engagement.
- The stock has major catch-up potential in our view
- Tesla (TSLA): The world’s largest & most recognizable EV auto brand.
- Investors want laser focused exposures to themes they believe in.
- Tesla is the largest and most profitable EV brand in the world.
- Continues to drive down manufacturing costs to enhance affordability.
- Tesla has chosen to focus on strong affordability which drives demand.
- A willingness to sacrifice margins short-term for long-term brand dominance.
- Price cuts + strong incentives make Tesla Model Y and Model 3 very affordable.
- Legacy auto brands are burning cash trying to compete & have labor/wage issues that keep cars & trucks less affordable.
- More cars on the road=more recurring profits and future brand loyalists.
- More real-time driving data = better safety innovation and autonomous driving optionality.
- Taking market share in tougher economic times is the hallmark of a Mega Brand.
- Costco (COST): The most impressive & dominant retail staple brand ever created.
- Pre-Covid, Costco was growing well and had strong brand loyalty.
- In Covid, Costco took market share and became a favorite of more consumers.
- In a high inflationary environment, Costco becomes even more valuable as trade-downs for saving money accelerate.
- All of these events brought millions more into the flywheel. They will not leave.
- The stock is a steady-eddy grower that offers periodic special dividends.
- There is no management team better in the retail industry than Costco’s.
Disclosure: The above report is a hypothetical illustration of the benefits of using a 3-pronged approach to portfolio management. The data is for illustrative purposes only and hindsight is a key driver of the analysis. The illustration is simply meant to highlight the potential value of building a consumption focused core portfolio using leading companies (brands) as the proxy investment for the consumption theme. This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.