Keep Faith in These Stocks

IN 1997, I coined the phrase “faith-based investing.” It has nothing to do with religion or with picking stocks at random.

- JAMES K. GLASSMAN

The idea is that a company with a great brand, attractive products, a history of success and a solid balance sheet will find a way to prosper even if it makes mistakes or otherwise experiences tough times.

The “faith” part is that you may not know exactly how such a company will get back on track, but you have blind confidence that it will.

Faith-based investing (let’s call it FBI) should not be confused with “buying the dips,” the practice of purchasing shares of a stock when it temporarily falls in price, often because the whole market is down. Instead, FBI focuses on companies that are perceived as having a great past but a miserable future.

Consider Starbucks (symbol SBUX, $95). The 53-year-old company has been a consistent winner for decades, planting 40,000 coffeehouses around the world. Shares, however, have been flat for the past five years while the S&P 500 index, the large-stock benchmark, has more than doubled. (Prices are as of August 31; stocks I like are in bold.)

Starbucks shares languished because profits stalled amid management failures. As a Harvard Business Review piece in June put it: “Starbucks is struggling. It has strayed from its successful strategy of offering customers exceptional experiences and, in the process, has commoditized itself.” Worst of all, the chain was losing what former CEO Howard Schultz called its “soul.”

Still, Starbucks remains the largest global restaurant chain by far, and it has increased its dividend for the past 13 years in a row. How to fix the company? I really don’t know. What I do know is that this is the classic FBI stock, and it will find a way.