Although the newly-separated AbbVie’s share price has outperformed Abbott Laboratories thus far post-split, Abbott Laboratories’ business should be the more consistent and faster-growing of the two going forward. Trying to discover the next multi-billion dollar blockbuster drug is a tall order for any pharmaceuticals company. And AbbVie Inc (NYSE:ABBV) currently has very little in the development pipeline to fuel future growth (as well as the patent expiration of Humira coming in 2016). For Abbott Laboratories (NYSE:ABT) though, long-term growth prospects are clearly visible with its exposure to emerging market countries such as China and India. This is particularly true for Abbott’s nutritionals division, which now makes up about 30% of Abbott’s sales and includes high-growth emerging market product categories such as baby formula.
Simple Fast Food
McDonald’s Corporation (NYSE:MCD) is a much simpler company than some give it credit for. Although many consider McDonald’s to be a global restaurant operator, an argument can be made that McDonald’s is actually a fairly simple real estate operator.
When we think of McDonald’s, we probably think of the almost 70 million customers served every day, the 119 countries of operations, the nearly 2 million worldwide employees that need to be managed or all of the food that needs to be sourced for each of its 33,000 worldwide restaurant locations. All of that all sounds like a rather complicated business undertaking. That is until you consider that approximately 82% of those 33,000 locations are operated by franchisees. The serving, operating, managing and sourcing are actually being done by the franchisees of McDonald’s.
Under the franchise model, McDonald’s Corporation (NYSE:MCD) functions much like a landlord; signing tenants (franchisees) to 20-year lease (franchise) agreements. Each month McDonald’s collects monthly rent payments from their franchisees for the use of the lands and buildings that McDonald’s owns. McDonald’s also collects royalty fees and advertising fees from its franchises (12% and 4% of restaurant sales respectively). While the sales of each individual McDonald’s restaurant can vary from time to time, McDonald’s is able to predictably expect the exact same fixed-amount of rent payments 12 times a year, every year, for the next 20-years. And at the end of the 20-year agreement, McDonald’s is able to renegotiate the contract again for even higher rent payments, starting the whole process over again.
Lessons of Foolish Youth
If there is one thing I wish I had learned earlier in my youth, it is that investing need not be the complicated endeavor some make it out to be. While there is certainly money to be made investing in complicated companies with complex business models, there is also money to be made investing in simple companies with simple business models. A very good lesson to learn, even if it took a little while to learn it.
The article Don’t Make Investing Too Complicated originally appeared on Fool.com and is written by Matthew Luke.
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