I recently read an article on CNN Money advising investors to invest in consumer product goods (CPG) companies. The logic was that CPG companies, as a group, have several features that should be appealing to investors:
- Predictability – these companies can predict how much of a product can be sold in the short-term so they control pricing and inventory well.
- Dependability – these companies are not going to see massive drops in revenue since consumer purchase their products regardless of the economic climate.
- Pricing power – due to their brand loyalty, these companies can put forward regular price increases with little negative market reaction.
- Global reach – while most of CPG companies get the bulk of their revenue in the western world, many have made significant investments in emerging markets.
The problem with the article is that the cited companies were fair at best, and some were poor. Instead of the CPG companies in the article, I suggest that you look at good companies such as Coach [stckqut]coh[/stckqut], Decker [stckqut]deck[/stckqut], Boston Beer [stckqut]sam[/stckqut], or Fossil [stckqut]fosl[/stckqut] (all of these companies are currently on my Watch List). If you want to own one or two of the companies in the article, P&G [stckqut]pg[/stckqut] (the stock symbol is not PR as cited in the article) or Unilever [stckqut]ul[/stckqut] are decent candidates – both companies are very well run.
Settling for companies that are familiar to you and you see on the grocery shelves may not be a good investment strategy. I suggest that you focus your portfolio on companies that have more upside potential but are still very well run.