An Idea for the Future
An Idea to Avoid
A Profitable Idea
Note from Cabot Wealth Advisory Editor Elyse Andrews: Occasionally, we bring you articles from outside sources that we think you will be interested in and benefit from. Today, we have an article from StreetAuthority's Stock of the Month editor Amy Calistri about a number of potential investment prospects--including a stock that's returned an average of +43% annually over the last five years. You can run stock screens and watch CNBC all day long. But sometimes the best way to come up with winning investment ideas is to get out into the world and start asking questions. To show you how it's done, StreetAuthority asked its ace investment snoop to share just one of her stock sleuthing days with us. I hope you enjoy it!
While I do spend a considerable amount of time in front of my Bloomberg terminal researching stocks, some of my most profitable ideas were borne from a casual conversation with strangers.
For instance, nearly 10 years ago at a break at an economic conference, I started chatting with two attendees. Inspired by that chat, I did more research and made my very first investment in an oil and natural gas company. Factoring in my realized and unrealized gains, that investment has delivered 650% to date.
Don't be discouraged by the number of leads you end up discarding. You just have to keep at it. You'll learn to recognize a gem when you come across it. Of course these days, I save my best ideas for my StreetAuthority Stock of the Month newsletter.
I chose one Saturday as my official StreetAuthority investment-snooping day. As you'll see, I learned a lot, discarded a few ideas on the spot, and found a potential winner along the way. Here's what one day of snooping turned up ...
An Idea for the Future:
"Stop that," my friend said as she punched my arm.
"What?" I asked coyly. "They don't know I'm listening."
It was the third inning of an Astros/Mets game at Minute Maid Park in Houston. The two guys behind us were talking shop and my radar immediately picked it up.
Both were real estate appraisers. Although they worked for separate companies, each talked about how robust business was. They still weren't seeing a lot of sales, but things seemed to stabilizing. They were, however, doing a lot of appraisals on foreclosure and mortgage refinancing.
The appraisal business appears to be more recession-proof than other real estate services. Until recently, a lot of banks used their own in-house appraisers, but it's a trend that is quickly changing. Many banks are opting to use outside appraisal companies that are potentially less-biased after this latest real estate debacle. This may make way for the formation of larger, publicly traded appraisal companies.
But for now, this is an idea I can kick to the back burner.
After the game, we headed to the bar at the Four Seasons. High-end hotel bars are a great place for investment sleuthing. There are a lot of solo business travelers willing to indulge in casual conversation. But I always start with the bartender.
An Idea to Avoid:
According to our bartender, it was stable--but nothing like it was a year ago. Occupancy rates were good, helped by a number of price promotions. Convention and conference traffic was still down--and that's a hotel's bread and butter.
Another note to self: Businesses are going to remain cautious until this recovery is in full swing. Continue to avoid investments associated with discretionary business spending, like travel, hotel and promotional materials.
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A Profitable Idea:
A nicely dressed older man sat at the bar drinking a club soda. His English was excellent, but I detected a slight accent.
At one point, he got up to have a smoke outside. I followed him.
I sat down on a bench and nodded. Once we started our chat, I learned he worked for a Spanish train manufacturer, Construcciones y Auxiliar de Ferrocarriles--or CAF for short. The stock trades on a number of foreign stock exchanges, so it may take a little more work for U.S. investors to access it. But I've found the discount broker E*Trade to be very helpful when looking to execute foreign trades.
Among its many international successes, CAF supplied the high-speed train that runs from Ankara to Istanbul. In March, it was awarded a $320 million contract for the supply and maintenance of 103 trams in Houston. This was the idea I took home with me.
Although we only exchanged first names, a little more sleuthing on Google images uncovered the stranger's identity: Jose Maria Baztarrica Garijo, CAF's Chairman of the Board.
CAF's stock has gained 498% in the last five years--that's an average annual return of 43%. The company has grown its dividend by 81% over the last three years, and is valued at just under 11 times earnings.
Analysts think the company's growth will slow over the next five years, but CAF seems to be working awfully hard to grow revenues. Growth in Spain has pretty much plateaued, but the company has grown revenues by 30% elsewhere in the last two years.
For a sleuthing expedition, CAF was a good find. I'll devote more time to research what the company has in the pipeline near term, but it's made a solid first impression. And besides, I have time--I've just picked my latest stock. It's an investment that commands a growing demand--a demand that may not be satisfied in my lifetime.
Always Searching for the Next Great Idea,
Editor of StreetAuthority Stock of the Month
P.S. You can get Amy's best finds for just $19.95. Her recent discoveries have earned StreetAuthority Stock of the Month subscribers 17.3%, 29.7% and 31.7% in less than five months. It's not too late for you to get on board. Go here to join now.