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2 Stocks to Buy, 1 to Sell Because the Wealthy Rule America

Written by: Rocco Pendola 07/10/12 - 6:30 AM EDT
Tickers in this article: WFM LULU TEA SBUX TSLA

Investors should pay attention to not only where the jobs are, but where the people with money to spend want (and choose) to live. After all, that's why healthy and high-paying jobs end up in these places.

At day's end, a considerable segment of the population craves the lifestyle that traditionally urban, walkable and mixed-use neighborhoods provide. Many folks who can afford to live in them. Others aspire to live in a great city neighborhood. As vacation destinations, dense cities tend to trump far-flung, carbon copy suburban places.

I give a second look and feel more comfortable going long stocks of companies that undertake a strategy of targeting affluent and/or urban markets. If that's where the jobs are, that's where the money is. If that's where the people qualified for the jobs want to be, that's where the money ends up.

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If you're going to adhere to a Peter Lynch style of investing in any way, ask yourself why restaurants and bars in high-priced urban areas are always packed. People, carrying bags, stroll shopping streets. And, of course, there's always a lineup at places such as Starbucks(SBUX) and Whole Foods Market(WFM) .

Because both companies have experienced considerable runs over the last year (SBUX is up about 29%, WFM about 47%) and report earnings later this month, it makes sense to classify them as cautious buys.

Investors could pull the stocks back on any hint of earnings-related disappointment. Whether they should or not, people get skittish with perceived high valuations. Plus, there's nothing wrong with taking profits, which is exactly what longs of SBUX and WFM might do over the next several months on strength or weakness. Simply put, a pause in the action would not surprise me in the least.

That said, both stocks present excellent opportunities for long-term investors, particularly those who employ a buy-write, covered call strategy. For a review of what a buy-write is and how to put one to work, see my recent article, "3 Auto Stocks to Buy Instead of Ford and GM." I would consider writing an out-of-the-money call for every 100 shares of SBUX or WFM purchased, as a partial hedge against weakness and source of income.