You know how Coca-Cola (KO) became Coca-Cola?
I live in Atlanta, so I know. It became Coca-Cola by selling the dream of America. Our modern image of Santa Claus was created by artist Haddon Sundblum -- for Coca-Cola. Legendary CEO Robert Woodruff made sure Cokes were in every World War II PX, and for the same price they sold at in Atlanta. When you were handed a Coke, you were handed a little piece of America, a promise of it.
This doesn't mean the company didn't adapt to local tastes. But whatever the flavor, Coca-Cola made certain it was made with safe, treated water. That was inherent in the brand promise. Still is. At its current price of over $68, KO sports a Google-like PE of 18.55. Not bad for an outfit that went public in 1919.
McDonald's (MCD) is much the same. It used a strategy similar to that of Coca-Cola to deliver a taste of America to the rest of the world. While adapting to local tastes and flavors, there is never mistaking a McDonald's, anywhere in the world, as anything but an American restaurant. At its current price of $98.80, it sports a PE of 18.75. Very much in the same range, but with a market cap one-third smaller, and about half the sales.
Which brings us to Starbucks (SBUX). If Coca-Cola is the promise, and McDonald's the taste, Starbuck's is an experience of America.
I was surprised, on a recent vacation to Italy, to find Starbucks competing strongly there, and on its own terms. While Italian coffee shops sell you a few minutes with a tiny cup and maybe a croissant, Starbuck's offered its pint cups and seats. Which were full.
It is this experience of America, which is behind the Chinese success described by Shaun Rein here last week. When a Chinese businessman sits down to a meeting at a Starbucks in, say, Chengdu, he is suddenly in Silicon Valley, or maybe New York, in his mind. Americans are pretty jaded on America, but for people outside this country, that can still be a powerful mental image, one well worth paying for.
As Dutch Trader noted here last month, Starbucks still gets just 20% of its revenue from international markets, meaning it has a lot of room to grow there. Some adaptation is required, as in India, where it's pushing mostly lattes and its Via instant coffee, but the idea is the same.
Starbucks isn't ignoring its home market. The addition of beer and wine to some outlets, aimed at expanding its hours of profitable operation, the addition of sandwiches and other drinks, purchases like Evolution Fresh and (before that) Tazo Tea, is all aimed at expanding the platform. What works here can be exported, what doesn't can be discarded.
There is a caveat on all these stocks, of course. That's America itself. Our popularity as a culture waxes and wanes. Right now it's waxing. If people start hating us, pull back.
At almost $49/share SBUX is pretty fully priced, with a PE of 29. But the company is still just half as big as McDonald's, in terms of sales, its international expansion is far less mature than that of McDonald's (let alone Coke), and even at that current price, it has the fundamentals to come good on an investment at its current price.
But I'd wait for the next bear attack (Greece? Iran?) to kick in before pouncing. Put this on your "bear market list," and when panic hits everyone else, you be the smart one and buy some quality.
Disclosure: I am long KO.