Most investors have heard the advice “buy what you know.” In fact, some in the industry have been recommending this investing style for years. I call it “everyday investing.”
When selecting the best stocks to buy, it’s fair to say familiarity with the companies you own is a wise strategy. But you can’t just pick companies that make products and services you use and expect to do well. Rather, you want to consider whether the companies behind them actually make money.
For instance, who among us hasn’t taken an Uber (NYSE:UBER)? Yet, the company has never turned a profit and is trading 10% below where it went public in 2019.
However, if you shop at Amazon (NASDAQ:AMZN) (and can look past how it treats its workers), buying shares makes tremendous sense. The e-commerce powerhouse generated nearly $12.2 billion in operating income last year and its share price is up 815% over the past decade.
Each of the names on today’s list of the best stocks to buy are companies whose products and services I use on a daily basis.
Starbucks (SBUX)
Most mornings, I walk three to four miles before starting my workday around 8 a.m. I always stop at my local Starbucks (NASDAQ:SBUX) for a Venti Americano and a quick check of my emails. In one way or another, Starbucks has been a part of my daily life since the early 1990s.
Because I mostly own ETFs to avoid potential conflicts of interest — not to mention it’s much easier to manage ETF portfolios than 20 or 30 stock positions — I’ve never actually held SBUX.
That’s my loss, for sure.
I’ve been working for 37 years. That’s so long that Starbucks hadn’t even gone public when I first started in the business world. The company’s initial public offering happened in June 1992, selling shares for $17. It raised a whopping $29 million in its IPO and the rest, as they say, is history.
In its 31-year history as a public company, its stock has split 2-for-1 six times, the first in 1993 and the last in April 2015. So, if you bought 100 shares in its IPO for $1,700, you’d have 6,400 shares worth $625,600 today, a compound annual growth rate (CAGR) of 21%. A CAGR of half that amount would be good. No wonder why Howard Schultz is a billionaire.
What I’ve learned about Starbucks over the years is that it always rebounds from adversity. In recent years, this has included labor disputes and Covid-19-related lockdowns in the United States and China, its two major markets. In the latest quarter, U.S. same-store sales grew 12%, while they rose 3% in China, the first positive quarter since fiscal Q3 2021.
Apple (AAPL)
Full disclosure: I own an iPhone, two iPads, an Airbook, a Mac desktop and a pair of AirPods. You could say I like Apple’s (NASDAQ:AAPL) products. However, the company’s services have contributed to its above-average growth in recent years.
In early May, Apple reported its fiscal Q2 2023 results. Investors expected a dud of a quarter. Instead, it delivered revenue and earnings that beat analyst estimates. On the top line, it generated $94.8 billion, $1.9 billion higher than the consensus, while earnings per share of $1.52 were 9 cents higher than expectations.
Apple’s Services business generated a record $20.9 billion in revenue, up 5.5% year over year. It includes Apple TV+, Apple Music and Apple Arcade and is the company’s highest-margin business segment.
“We are pleased to report an all-time record in Services and a March quarter record for iPhone despite the challenging macroeconomic environment, and to have our installed base of active devices reach an all-time high,” Apple Chief Executive Officer (CEO) Tim Cook said in the company’s press release.
Of the 40 analysts covering AAPL stock, 30 rate it “overweight” or “buy,” with a median target price of $183.43, which is 3.5% above its current share price.
On May 23, the company announced a multiyear agreement with Broadcom (NASDAQ:AVGO) to develop 5G components that will allow it to develop more advanced products with American-made components, part of Apple’s commitment to invest $430 billion in the U.S. economy over five years.
Apple is Warren Buffett’s largest equity position by a country mile for a reason.
Alphabet (GOOGL)
As a freelance writer, Google Drive is my savior. I use it eight to nine hours each workday for article writing, billing, etc. I’m sure many of my InvestorPlace colleagues feel the same.
As the parent company of Google, Alphabet (NASDAQ:GOOGL) has spent the last few years working on building revenue streams other than Google Search. It’s had middling success doing so.
In 2022, Alphabet had revenue of $283 billion. Of that, Google advertising accounted for 79%. That’s broken down into three revenue streams: Google Search (72% of Google advertising), YouTube ads (13%) and Google Network (15%). The remaining revenue is split between Google Cloud (nearly 10% overall) and other (a little more than 10%), which includes Google Play, Fitbit, Google Nest, Pixel devices, YouTube Premium and YouTube TV.
I can see from the paragraph above, and knowing how I benefit from Alphabet, the dilemma faced by the company. It generates revenue from me from Google Cloud and Google Workspace, and indirectly through Google Search. But, on the other hand, I don’t spend much time on YouTube, don’t use Google Play, or own any Fitbit or Nest products.
So, how does it grow when other companies such as Meta Platforms (NASDAQ:META), Amazon and Apple are nibbling on its ad business? That’s the million-dollar question.
However, with the company generating more than $60 billion in free cash flow a year, it has the luxury to think further out.
That’s probably one reason Bill Ackman’s Pershing Square Holdings took a $1 billion position in May.
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.
