Every so often a big company with a powerful brand goes bankrupt because of changing technology in its industry. Eastman Kodak Company, once a powerful brand in the film business, went bankrupt in 2012. Kodak used to sell canisters of film by the thousands daily. But those days are long gone as consumers turned to digital cameras to make photographs.
Today hand-held devices such as the iPhone have replaced so many products. An all-in-one device, you have the clock, GPS system, phone, digital music player, Internet, camera and movie-making technology. On top of that, there are thousands of new applications for the iPhone. So how do you buy stocks that can’t be replaced by a new app or new technology? In this article we examine three stocks that can’t be replaced by the iPhone.
Consumer non-cyclical stocks are a great sector in which to hunt for companies with strong loyal customers. Consumers buy chocolate, peanut butter and cleaning products regardless of how the economy is doing. Two of my favorites in this sector are The Coca-Cola Company (NYSE:KO) and Hershey Co (NYSE:HSY).
Both have deeply entrenched name-brand recognition and distribution channels worldwide. Both have long histories of creating shareholder value through growing sales and raising dividends. Both sell products that loyal customers buy and consume again and again and again.
Hershey Co (NYSE:HSY)’s penetration into the chocolate confectionary market is mammoth. Babies grow up learning the names of Hershey Co (NYSE:HSY)’s Milk Chocolate bar, Kit Kat and Reese’s Peanut Butter Cups. One risk is a bad cocoa crop. Supplies of cocoa beans, grown in certain regions near the equator, have been decent in the 2012-13 season.
Last month, Hershey Co (NYSE:HSY) raised its quarterly dividend 15.5% to $0.485 per share. Annualized, this dividend adds up to $1.94 per share or a 2% yield on a $96.59 stock.
Cherry Coke: A Buffett favorite
The Coca-Cola Company (NYSE:KO) has been one of Warren Buffett’s largest holdings for more than 20 years. Buffett has been known to drink several Cherry Cokes during his annual meetings.
In 2011, Buffett noted The Coca-Cola Company (NYSE:KO) paid about $376 million in dividends to Berkshire Hathaway Inc. (NYSE:BRK.A), up $24 million from the previous year. “Within 10 years, I would expect that $376 million to double,” he wrote.
The Coca-Cola Company (NYSE:KO), over a 10-year period, can incrementally raise prices of its products while trying to sell additional volumes in the 200 countries where it does business. The rising prices and growing volume allow the company to raise its dividend.
A year ago, Coke split its stock 2-for-1 at $80 a share. The stock has been trading at or near the after-split price ever since. Net income in the second quarter dipped to $2.68 billion, or $0.59 cents per share, from $2.79 billion, or $0.61 cents per share, a year earlier. Revenue in the quarter dropped 3% to $12.75 billion. The company blamed weather as partly responsible for Coke’s decline in revenue, earnings and volumes in the second quarter. Europe has been a tough market for Coke lately. But over time I expect The Coca-Cola Company (NYSE:KO) to rebound with growing revenue and earnings. The Coca-Cola Company (NYSE:KO) stock at $40.37 per share yields a 2.8% annual dividend.