The Inspiring Story of Grace Groner
Astonishing Luck, Patience and Good Judgement
An Undervalued Stock with a Strong Growth Story
Grace Groner lived a simple life. She and her sister had been orphaned when Grace was 12, and they were taken in and adopted by a prominent member of their small Illinois farm town. Eventually, their benefactor sent them both to college at Lake Forest. After graduating in 1931, she became a secretary at Abbott Laboratories, which was, apparently, the only job she ever had. She remained single throughout her life, never owned a car and lived in a small house she had inherited near the Lake Forest campus. While she did a lot of traveling and gave money to charities, she bought clothes at rummage sales and generally lived the kind of frugal life that made sense to many survivors of the Great Depression.
But back in 1935, she also did a little investing. Since she was working at Abbott, she bought three shares of the company’s stock for $60 a share. Then she held them for 75 years!
And when she died at age 100, she left her estate to a foundation she had established to benefit students of Lake Forest College. Her estate was valued at $7 million.
I am fascinated by this story, and checked out a Purchasing Power Calculator to figure out how much $180 in 1935 dollars would amount to today. The answer is that the inflation in the Consumer Price Index (CPI) since then makes her $180 equivalent to $3,050 in 2013 funds. It’s still a pretty modest amount. (From what I’ve read, Ms. Groner just rolled the periodic dividends that she received right back into the stock.)
Ms. Groner was fortunate in many ways. First, unlike many companies, Abbott Labs didn’t bite the dust during the Great Depression. Second, she bought her one investment at a time when the market was lower than a snake’s belly in a wagon rut.
But if you tell this story to someone in the financial planning business, they’ll just wince and shake their heads in wonder.
They know that buying just one stock is a bad idea. In fact, it’s one of the highest-risk strategies around, off-the-chart high. For them, it’s the equivalent of going to a roulette table and betting on 17 black over and over again. (I’m thinking about all those loyal employees who bought Enron stock and nothing else.)
I know this because, as a growth investor, I’m sometimes taken to task by a friend of mine who’s a financial advisor. He sees my aggressive 10-stock personal portfolio as crazy risky. He advises his clients to have dozens of issues in their retirement portfolios, including value stocks, income stocks, sector funds, index funds, Treasuries, munis and cash, all in carefully calculated proportions and rebalanced twice a year to make sure the risk is spread around.
That’s probably a good idea, of course, but I suspect that there are more investors on Grace Groner’s end of the diversification spectrum than on my friend’s.
I have three observations about this story.
First, it’s a great illustration of the power of time. Most investment portfolios, even if you start them in your mid-20s, will have only 40 years for the power of compounding, stock price appreciation and dividend reinvestment to do their work. Then you retire. Ms. Groner’s Abbott stock had 75 years.
Second, very few people are self-sufficient enough (or disciplined enough) to just let the money sit and accumulate. By the time Ms. Groner’s three shares were cashed in by her foundation, its eight stock splits alone would have increased the number of shares she owned to 1,152. And if you add to that the additional shares bought with the reinvested dividends, the amount of capital involved would be really substantial.
Third, Abbott Laboratories’ stock (ABT) was a steady grower over its lifetime, but it really turned into a high flier in the last decade or so before Ms. Groner’s death. Here’s a chart of ABT from April 1983 through the end of 2010, showing the stock’s rise from a split-adjusted 1.26 to 23. (ABT is now trading at about 40.)
For those of you who may wish to emulate Grace Groner’s astonishing luck, patience and good judgment, I have a couple of suggestions.
First, Tim Lutts, Chief Analyst of Cabot Stock of the Month, is just starting a new series in his Cabot Wealth Advisory called “10 Stocks to Buy & Hold Forever.” Over the next few months, Tim will be giving his choices for stocks that have great long-term stories and prospects. When he has featured these kinds of stock in the past, the results have been excellent. And the longer they run, the stronger the boost they get from the power of time.
Second, I think Cabot China & Emerging Markets Report, which features stocks from the fast-growing emerging economies around the world, is a prime source for stocks that have incredibly bright futures. Investors aren’t comfortable with emerging market stocks; they don’t know the names and they don’t understand how those markets work. But as a source for stocks that are the equivalents of Abbott Laboratories in 1935, you can’t do better. Chinese stocks are especially well positioned to roll higher for years to come.
If the only Chinese stock you’ve heard of is Alibaba (which will be scheduling its IPO soon), you have a world of strong stocks that are beautifully out-of-favor right now. If you subscribe to Cabot China & Emerging Markets Report now, you will be at the head of the line when Chinese (and other emerging countries’) stocks explode higher.
Click here to learn more about how stocks featured in Cabot China & Emerging Markets Report can boost your portfolio returns.
For my stock recommendation today, I’m featuring Mindray Medical International (MR), a Chinese maker of medical equipment that I recommended as a growth stock in August 2012.
Now, with Chinese stock deeply out of favor with investors, Mindray is a significantly undervalued stock whose strong growth story hasn’t changed a bit.
When we first got to know Mindray Medical International back in 2006, it was a company with annual sales of just $173 million. Its product line of patient monitoring and life-support, medical imaging and in vitro diagnostic instruments was selling well within China, and revenue had been growing by more than 50% a year for four years. As to the originality of its designs, it would be polite to say that the company knew a good design when it saw it … and copied it.
But Mindray’s owners had both discipline and ambition, and the company was committed to spending 10% of revenue to improve its designs. The aim was to become more than a supplier of cheap knockoffs to the hospitals and clinics of China.
These days, Mindray is a thriving company with a market cap of $3.5 billion and sales of $1.25 billion, 58% of which comes from outside China. The company has a portfolio of hundreds of patents protecting improvements and refinements of the western designs that were the original models for its products. Mindray devices compete successfully with major western manufacturers on their value proposition and quality. In addition to its 29 provincial sales and service centers within China, Mindray has a significant presence in the U.S. and has placed its devices in more than 80 countries worldwide.
In the company’s early years, sales of capital equipment like MRI machines were achieved mainly in small hospitals and clinics, while GE and Siemens dominated sales to first-line hospitals. But years of budgetary pressure and increasing product quality (and service) have made Mindray a contender in larger and more affluent establishments.
In addition to its organic growth, Mindray has grown via an aggressive M&A program. Probably the biggest move was the company’s 2008 acquisition of New Jersey-based Datascope, which brought with it a collection of patient monitoring systems that were already approved for sale in the U.S. The company has since bought Shenke Medical, Suzhou Hyssen Electronics, Zhejiang Greenlander IT and Hunan Changsha TDR Biotech. Every takeover has increased both product count and the company’s dedicated sales network.
Mindray Medical International is a quality company with a strong vision of its future. MR has been bumping downhill since it peaked at 44 in September 2013. It’s now trading at around 30, but with an attractive P/E ratio of 15 and a small dividend (forward annual yield is 1.5%) MR has enormous upside potential. It’s consistently profitable, aggressively managed and constantly expanding its product list.
MR has been in a downtrend since last August, with the latest hit coming from a disappointing earnings report on May 7. But from a long-term perspective, that's of little importance. Mindray has a profitable niche in the medical equipment business and the stock will find bottom, rebase and start appreciating when it's ready. And after a major haircut like this one, value investors will be leading the stock's resurgence. I'm confident that MR will reward those with a long investment horizon.
I recommend fascinating stocks like Mindray Medical in every issue of Cabot China & Emerging Markets Report although I wait for them to transition into uptrends first. And if you are looking for stocks with the potential to allow you to endow your alma mater with a big gift, it should be on your list.
Click here to learn more.
Chief Analyst, Cabot China & Emerging Markets Report
Editor of Cabot Wealth Advisory
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