One of my favorite pastimes is creating outside-the-box stock portfolios for InvestorPlace readers. Recently, I read the New York-based research firm Morning Consult’s special report “Most Trusted Brands: The State of Consumer Trust.”
Using its brand tracking platform, Brand Intelligence, Morning Consult conducted consumer surveys between September 2019 and December 2019, coming up with an average of 16,700 interviews for 2,000 different U.S. brands.
Consumers were asked, “How much do you trust [blank] to do what is right?”
Not surprisingly, the report found that only 6% of respondents said that they have a lot of trust in corporate America to do what is right. A full 54% of respondents had little or no trust in corporate America.
Amazingly, 20% trusted President Donald Trump “a lot” to do the right thing, 400 basis points higher than the level of trust for Warren Buffett. That’s another subject for a different article, but I digress.
On the plus side, 74% of Americans trust the average major company to deliver consistently on what they promise.
Of the 25 most trusted brands in Morning Consult’s report, these seven are the ones with whom I’d invest.
Of all the different groups included in the survey, consumers trust Amazon (NASDAQ:AMZN) more than Oprah, Tom Hanks and teachers. Only the military and primary care doctors ranked higher.
In terms of large companies, Amazon ranked second out of the top 25, with only the United States Postal Service ranking higher. Tell me again why the USPS doesn’t go public?
As for Amazon, it’s easy to understand why so many consumers trust Amazon to do the right thing. When you deliver millions of packages each year to front doors across the country, except for the odd screwup, packages get to their destinations promptly. In the case of Amazon’s Prime delivery offering, in two days or less.
And while I’m not a big fan of the way it treats its rank-and-file warehouse workers, AMZN stock has a great shot at getting to $10,000 at some point in the next decade.
According to Morning Consult’s report, almost 38% of those surveyed trust Google “a lot” to do the right thing. That’s excellent news for Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), the holding company that owns Google.
Whether you consider it an advertising company or a search engine or a tech business, it’s clear that consumers trust the Google brand, and that trust is reflected in its stock price.
On Jan. 16, GOOGL stock hit the magical market capitalization of $1 trillion, the fourth company to do so behind only Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and then Amazon.
That’s an elite club, at least for now.
In the meantime, Google founders Larry Page and Sergey Brin have stepped down from day-to-day management of the company, opting to put Sundar Pichai in charge. Pichai has run the search engine business since his appointment in August 2015.
One of the significant revenue generators in the years ahead will be Google Cloud, which saw its run rate double to $2 billion per quarter in 2019, and is projected to grow to $4 billion by the end of 2020.
As I said in October, with all of Alphabet’s free cash flow, it ought to be buying more of its stock. Up 18% since then, I see no reason why it should stop.
The only fintech of the bunch, 36.5% of those surveyed said they trusted PayPal (NASDAQ:PYPL) “a lot” to do the right thing.
When you handle 3.1 billion payment transactions worth $179 billion in total payment volume, consumers are going to know pretty fast if the service doesn’t deliver the goods. While PayPal is in a big fight with Square (NYSE:SQ), both have recently been upgraded by analysts.
“In a sector with many strong companies and stocks, we maintain a high bar for a buy rating: An expectation of 20-per-cent-plus stock upside over the following year, with specific catalysts,” MoffettNathanson’s Lisa Ellis said in a January note to clients. “Four stocks currently clear that bar: Square, PayPal, Mastercard Inc., and Visa Inc., in that order of preference.”
In 2020, PayPal shareholders should reap the benefits of its partnerships with both MercadoLibre (NASDAQ:MELI) and Uber (NYSE:UBER).
As I said in November, here comes $200.
How can you not trust the company behind the Hershey (NYSE:HSY) Kiss?
Add to this the company’s humble beginnings and its founder’s dedication to helping the less fortunate get a proper education, and it’s easy to understand why so many consumers trust this maker of chocolates and candy.
Sadly, Hershey’s announced that it is retiring its fleet of “Kissmobiles” that tour the country after 23 years in service. Fear not, if you’ve never seen one of these custom vehicles, Hershey is putting one of them on display at the AACA Museum in Hershey, Pennsylvania.
Last March, I said that HSY stock was worth buying despite trading at a 52-week high. In the 10 months since it’s gained 33%. One of the reasons I like Hershey is both its CEO, Michele Buck, and 45% of its board are women.
Statistic after statistic shows that women-led companies outperform. My bet is Hershey will continue to be one of those.
General Mills (NYSE:GIS) makes the Cheerios brand of cereal, the ninth most trusted brand in America. Unfortunately, cereal brands haven’t fared very well in recent years, as consumers have opted for healthier breakfast alternatives.
Fear not, if you own GIS stock. Its business is stronger than many realize.
In December, General Mills reported its second-quarter 2020 results, which included a 1% increase in organic sales, and a 48% increase in operating profits. Leading the charge in the second quarter was a 16% increase in organic sales by its pet food business, which it acquired when it bought Blue Buffalo for $8 billion in 2018.
Sure, it only contributes 9% of sales, but it gave the company something positive to talk about in subsequent quarters. Furthermore, the pet business continues to grow. I wouldn’t be surprised if you see General Mills make another acquisition in this industry. Plus, pet food operating margins are higher than 20%, helping it convert more of its earnings to free cash flow.
General Mills expects to convert 105% of its adjusted after-tax earnings to free cash flow in fiscal 2020, a sign that its overall business is getting stronger despite the perception cereal brands are a thing of the past.
There are a lot of investors betting against Netflix (NASDAQ:NFLX) in 2020.
“To the extent the market sees the NFLX growth story as ‘busted,’ there is a lot of downside to the shares. At present, NFLX burns several billion dollars a year in cash and has accumulated a heavy debt load, even before considering future content commitments,” Greenlight Capital CEO David Einhorn wrote in a January letter to shareholders.
Einhorn’s argument about spending on content isn’t very original. Nor is his thesis about increased competition.
As I recently wrote about Netflix, I see the worry by investors over Apple, Disney (NYSE:DIS) and Comcast (NASDAQ:CMCSA) entering video streaming as entirely overblown. As Morning Consult’s survey points out, none of these companies made the list of America’s 25 most trusted brands — Netflix excepted.
Yes, Netflix made some poor content decisions in 2019. The Irishman was one of the worst. Way too long.
However, when it comes to the overall content, it stands heads above all of these Johnny-come-latelies.
“Frankly, I see Netflix being cheaper than it’s ever been, save for last August when it traded in the mid-$250s. Long-term, I’m confident it can get to $500, $1,000, and beyond,” I concluded my Jan. 21 article about the company.
When it comes to Netflix, Einhorn is barking up the wrong tree.
It appeared early in 2019 that America could be headed for a recession. That’s never good for a company like Home Depot (NYSE:HD), which depends on strong consumer confidence to grow sales. Fortunately for owners of HD stock, the threat of a recession has subsided.
One stat that suggests HD stock is in for a good year in 2020 is the fact that the iShares U.S. Home Construction ETF (BATS:ITB) has gained 50% over the past year, almost double the S&P 500. HD is the fifth-largest position in the exchange-traded fund, with a 4.7% weighting. It’s on a roll and likely to stay that way.
In fiscal 2019, Home Depot expects to deliver comparable-store sales growth of 3.5%, 50 basis points lower than its projection at the beginning of the year. It does expect earnings per share to meet its original guidance, growing 3.1% to $10.03 a share.
As the company’s “One Home Depot” strategic investments start to reap benefits in 2020, I think you’ll begin to see its operating margins move higher. Without a recession on the horizon, Home Depot remains a good combination of growth and income.
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