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The Highly Investable Consumer Businesses

We find that investment gurus often have a common interest in specific characteristics of business transactions among their investees: small-ticket, non-durable, repeatable, B2C and hopefully relating to everyday use.

Think about Warren Buffett (Trades, Portfolio)'s longtime investments in Coca-Cola (NYSE:KO), American Express (NYSE:AXP) and Kraft Heinz (NASDAQ:KHC). For Terry Smith, the "English Buffett," it could be Paypal (NASDAQ:PYPL), PepsiCo (NASDAQ:PEP), and Estee Lauder (E.L.).


Mr. Smith elaborated on the rationales by describing such transactions as being highly-predictably and non-negotiable. As a result, we think that a business model built upon such transactions leads to fewer equity risks, as opposed to those who face cyclical demands, well-thought-out purchasing decisions and/or energy-consuming bargaining (think about selling cars or real estate).

Below are a few other consumer businesses sharing the same traits that we at Urbem like.

Monster Beverage

California-based Monster Beverage (NASDAQ:MNST) develops, markets, sells and distributes energy drinks, concentrates for energy drinks and related products. The business leverages an asset-light operational model by outsourcing its manufacturing process to third-party bottlers and digs itself a brand-based economic moat.

According to Statista, more than 4.6 million cans of Monster energy drinks, on average, are being sold in the U.S. every day as of the fourth quarter of 2019. The company's revenue has been steadily increasing over the last 15 years (including the Financial Crisis), while its returns on assets were kept at a superior level (see below).

Church & Dwight

New Jersey-based Church & Dwight (NYSE:CHD) is a leading U.S. consumer product business that is mainly involved in manufacturing and marketing cleaning, hygiene and personal care products. The majority of the company's products are sold under well-recognized brands and for almost everyday use, including Arm & Hammer baking soda, Oxiclean stain remover and Vitafusion gummies.

As with Monster Beverage, Church & Dwight delivered a high annual return on assets and improved its top line each year over the last 15 years (see below).

WD-40

California-based WD-40 (NASDAQ:WDFC) develops, manufactures and markets household and multi-use products to more than 176 countries worldwide. The company's flagship namesake product, WD-40 Multi-Use, contributes to nearly 80% of its total sales and is considered a "toolkit in a can," thanks to over 2,000 documented uses, including lubrication, rust prevention, penetration, cleaning and moisturizing. The broad spectrum of applications adds to the frequency of usage and shortens the lifespan of the versatile product post-purchase. Consumers can buy the WD-40 Multi-Use online or offline through multiple trade channels, such as home centers, grocery stores and farm supply stores. The listing price on Amazon.com is just around $10 per can. The company estimates a range from $0.4 to $70 per year in terms of annual usage amounts across end-users, depending on their skillset and focus level.

The brand's reputation, a distribution network of a global scale and a top-secret formula enhance the forecastability of sales and returns at WD-40. According to the chart below, the business improved both its return on assets and revenue for the past 15 years.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We own shares of Monster Beverage.

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This article first appeared on GuruFocus.