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Pure plays and notes
THE MOTLEY FOOL
Ask the Fool
Published: June 18, 2020
Q: What's a "pure play" in investment-speak? -- D.T., Abilene, Texas
A: Many companies are engaged in more than one kind of operation. Apple, for example, offers not only hardware such as phones and laptops, but also services such as Apple Music and the Apple Arcade. Disney operates parks and resorts but also makes movies and owns ABC, among other things.
In contrast, a "pure play" company has a singular focus. Coca-Cola, for example, is a pure play on beverages; PepsiCo is not, as it encompasses many snacks, along with drinks. Netflix is a pure play in streaming content, while Amazon.com, despite its Prime Video, is not.
Pure plays appeal to investors because their managements are able to focus fully on a single industry niche or kind of product.
Imagine that you're very excited about cloud computing, and you believe it will grow briskly. You might invest in a diversified company that's involved in cloud computing -- or you might instead opt for a cloud computing pure play, figuring that it can grow more rapidly, as it's not involved in slower-growing businesses. Of course, pure plays are also vulnerable -- their business could be eclipsed by something else, or simply fall out of favor.
Q: What are investment "notes," and are they safe? -- J.N., Newark, New Jersey
A: Notes are debts, typically short- or intermediate-term ones -- maturing in about one to 10 years. The least risky are Treasury notes, sold by the government, while corporate "notes payable" are riskier. Strong companies with solid credit ratings can offer safer investments with lower interest rates, while shakier companies have to offer higher interest rates to offset their higher risk. The riskiest notes are considered "junk bonds."
Fool's School
Managing Your Money During a Pandemic
These are uncertain and worrisome times, with many people suddenly out of work and many others more nervous about their finances than ever. To boost your financial security, here are some things you might want to do:
-- Have an emergency fund. Stock it with three to nine months' worth of all your living expenses, such as food, housing, taxes, insurance, transportation, utilities and so on.
-- Pay off high-interest-rate debt, such as that from credit cards. The less you owe, the better off you'll be in case your finances get shaky.
-- Live well below your means. Aim to be spending less than you bring in, and ideally a lot less. Then save that difference.
-- Find ways to spend less. At least for a while, consider cutting the cable TV cord and just stream instead. Perhaps buy less meat and cook more vegetarian meals. Consider quitting your gym and exercising at home or in your neighborhood. Run your air conditioning less often. Call insurers to see if any can offer you lower-priced policies for your home or car. And so on.
-- Look for new sources of income. Many more of us may lose jobs in the months ahead, so consider setting up some new income sources now. You might take on a part-time job, do online tutoring, make and sell crafts online or try a number of other things.
-- If you're out of work or simply in need of relief, seek aid. Know that the range of people who qualify for unemployment benefits has been expanded. Federal and many state tax deadlines have been extended. More companies are offering paid leave to workers for coronavirus-related reasons, and some state health insurance exchanges have been reopened for those who need coverage. Your landlord or mortgage lender may offer some relief, too.
Above all, stay as safe as you can: Wash your hands frequently, wear masks in public and practice social distancing.
My Dumbest Investment
My Life's Worst Financial Blunder
My dumbest investment was a timeshare. Ugh.
We started out rejecting all the salespeople's offers. They kept coming down on price, and when they got to 20% of the original asking price, we bit. The result: Negative return on investment, and yearly fees. I "sold" the deed for $0. That's more than just my worst investment of this decade -- it was the worst "investment" of my life. -- T.B., online
The Fool responds: Timeshares, where you buy the right to use vacation properties for part of each year, have their upsides, but their downsides have vexed many investors over the years.
On the plus side, it is a way to partially own a vacation home, while only paying for the time that you plan to use it, and you might actually end up saving money with one. On the other hand, you're charged significant fees, and the fine print might harbor other surprises. Should you decide you no longer want to own your timeshare, it can be very hard to sell, and resale scams abound. While you're trying to sell, the property is likely depreciating, but you're still on the hook for taxes, fees, assessments and any mortgage payments.
Don't make the mistake of viewing a timeshare as a good investment. For most people, it's simpler -- and often less costly -- to just rent a vacation site or hotel rooms whenever they're needed.
Foolish Trivia
Name That Company
I trace my roots back to 1903, when my namesake incorporated me in Michigan. In 1908 I introduced a super Model -- and made more than 15 million of it over 19 years. I soon developed an assembly line, which could churn out a car in a few hours. I drew workers with my eight-hour workday and more than doubled wages to $5 per day -- helping create America's middle class. Today, with a market value recently near $23 billion, I'm an automotive titan, recently employing about 188,000 people worldwide and shipping more than 5 million vehicles annually. Who am I?
Last Week's Trivia Answer
I trace my roots back to the 1954, 1964 and 1972 foundings, respectively, of Burger King, Tim Hortons and Popeyes. My history is a bit complicated: The investment company 3G bought Burger King in 2010, added Tim Hortons in 2014 and gave me my current name, and then added Popeyes Louisiana Kitchen in 2017. Today, based in Toronto, my empire features more than 27,000 (mostly franchised) eateries worldwide -- more than 18,500 Burger Kings, nearly 5,000 Tim Hortons and more than 3,000 Popeyes. My market value was recently around $16 billion, and I employ around 6,000 people. Who am I? (Answer: Restaurant Brands International)
The Motley Fool Take
Bubbling With Opportunity
If you're looking for long-term steady growth and income, look at one of the world's largest beverage companies, Coca-Cola (NYSE: KO). The company is bubbling with opportunity, in part due to its geographic diversity -- it operates in almost every country on Earth. Having its footprint in so many markets allows Coca-Cola to take advantage of higher-paced emerging market growth, as well as predictable developed market sales.
Coke touts an unparalleled distribution system, innovative equipment platforms and a diverse customer base. It holds approximately 20% of developed market cold beverage market share but just 10% of the cold beverage share in developing and emerging markets. The latter account for the vast majority of the global population, giving the company plenty of runway to grow its sales and profits in the years to come.
Meanwhile, Coca-Cola also has at least 21 brands that generate more than $1 billion in annual sales -- such as Diet Coke, Coke Zero Sugar, Fanta, Sprite, Dasani, vitaminwater, Powerade, Minute Maid and Gold Peak. Its customers consume nearly 2 billion servings of its drinks -- each day.
Then there's income. Coca-Cola's dividend recently yielded 3.4%, and it was increased for the 58th consecutive year several months ago. The stock is not a rapid grower, but it's likely to hold its value better than many. It has delivered value for shareholders for many decades, and is likely to keep on giving.
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