3 Homerun Stocks Powering a ‘Stealth’ New Paradigm
May 13, 2015
Fifteen years ago, a Wall Street rebel published a roadmap to the success that made him a legend in investment circles. And now, you can put his strategy to work building your own million-dollar wealth. Beginning with the three “new paradigm” stocks highlighted in this report…
Table of Contents
- You may have guessed who that “rock star” is…
- My mother says she never heard of this “Peter Lynch…”
- Now if you can “catch a wave,” then you’re really in business!
- “3 Homerun Stocks Powering a Stealth New Paradigm…”
- Stealth New Paradigm Stock No. 1: An oldie but a goodie!
- Stealth New Paradigm Stock No. 2 – Mom’s favorite “old country store…”
- Stealth New Paradigm Stock No. 3 – Loud and proud!
- But wait! Massive profits are only one benefit I want you to consider…
- On May 20, 2015, you’re personally invited to take me up on this unusual offer…
In my nearly 30 years working on Wall Street, including two decades running my own independent equity research firm, I’ve seen it all. From bizarre multivariate models with thousands of inputs to quant-driven hedge funds, so arcane (and potentially destructive) they can only be handled by Nobel Laureates.
Then you meet a true business owner like Warren Buffett. Buffett is considered the world’s greatest investor and is among the richest people on the planet. And don’t get me wrong, Mr. Buffett can do the math. He reads financial statements and calculates ratios in his sleep. But you’d never call him a “quant” investor – and he certainly doesn’t get his ideas from quantitative screens or models.
If you think Buffett’s a one-time fluke. Or that he’s overrated, got lucky, or had good timing. Or maybe that the world passed him by. Well, that’s okay, too. You see, legend that he is, Warren Buffett isn’t the only world-class investor who favors a more “subjective,” business-owner approach to getting rich in the markets. In fact, another rock star money manager is the real poster boy for the strategy we’ll discuss in this report and that I want to reacquaint you with today.
Back in April 2000, mutual fund manager Peter Lynch published his investing blueprint, “One Up on Wall Street.” His colleagues were not thrilled. They’d spent decades and millions of dollars trying to convince us that investing is difficult – and best left to professionals. The last thing a full-service stockbroker or Wall Street analyst wanted to see was an army of confident, self-directed investors convinced they could “do-it-themselves.”
You see, Lynch didn’t just prove you can identify winning investments — he argued that you can out-perform the pros in the process (and still sidestep their high fees!). And, unlike other talking heads, Peter Lynch had the Wall Street pedigree and documented track record to back up his bluster. To this day, he might be the most successful mutual fund manager in history.
So what’s Lynch’s “secret?” It would be a mistake to oversimplify his process. Lynch was notorious for working long days, seven days a week, identifying and researching opportunities for his Magellan shareholders. But he would tell you himself that his approach was far from the most “complicated” on Wall Street – and that this very “simplicity” was a major contributor to his remarkable success.
More than anything, Lynch was an advocate for “sticking to what you know.” That is, investing in businesses you can readily understand. If you are a loyal, satisfied customer of the business, according to Lynch, even better. For this reason, he also argued that you’ll almost never find the next homerun investment using a stock screen, or from your broker, or picking over sell-side equity research reports.
More likely, according to the most successful mutual fund manager in history, you’ll find the next great investment – the one that can make you truly rich and change your life — right under your nose. It could be at the local mall… it could be at work… it could even be hanging in your kid’s closet right now. Above all, Lynch believed that you don’t need an MBA or PhD in mathematics to make a fortune uncovering and investing in the world’s top businesses.
But between you and me, I’m a little dubious. Seriously. My mother has no Wall Street background. Yet she has been alerting me – a business show host and 24-year Wall Street veteran — to investment ideas for years. And frankly, the similarities with Peter Lynch’s approach (and I dare say his results) are uncanny.
A decade or so ago, my mother called me at my Wall Street office, raving about a restaurant concept she’d just discovered. Remembering how Lynch had made 30 times his money after hearing his wife rave about seeing an exciting new product called L’eggs at the local drug store, you can bet I jotted down the name. The restaurant was called Cracker Barrel (Nasdaq: CBRL). Not only did I like the concept when I checked it out myself, but after some serious digging into the books (more on this just ahead), I liked the stock, too.
It was the same story when she came to me raving about an unusual store called Burlington Coat Factory, which trades under the name Burlington Stores (Nasdaq: BURL). Why, she demanded, would I insist on spending so much on my kids’ clothes when I could get the exact same stuff for a fraction the price? More important, why would anyone else? She had a point!
Again, I popped open the hood and did some digging into the numbers. It turns out Burlington’s financials and other underlying fundamentals were as impressive as its super-low prices. It was the same story with Baltimore, Maryland upstart Under Armour (NYSE: UA) a few years later.
Over the years, I’ve seen the same story play out again and again – which has made my mother’s stock ideas very popular with viewers of my daily television show, Making Money With Charles Payne – not to mention my firm’s institutional clients.
You can see why I’m so convinced that Peter Lynch was right – and that the high-tech double-talking gear heads on Wall Street are leading investors astray. You can also see why I’m so convinced that, if you put your mind to it, you can spot the next life-changing investment ahead of the Wall Street herd. In fact, you may have found it already!
This is the minor twist I’d like to offer on top of Peter Lynch’s near-perfect philosophy. Like Lynch, I believe you should keep your eyes open and look everywhere for your next great investment idea. But I want you to take it step a further. I’ve found that the very best investments – the ones that can earn you 10 times your original investment or more — are often companies that are riding a fundamental shift in consumer attitudes or behavior.
I don’t exaggerate when I say that if you can uncover just a handful of these, it can literally change your life! That’s why I’m so pleased you took the time to read this report. Because I believe we’ve discovered such a situation unfolding right now.
In fact, my team of analysts at my independent research firm, Wall Street Strategies, have been doing a good deal of digging into what appears to be a major generational shift in consumer attitudes and behavior. A cultural shift that we believe Wall Street may be misreading.
I’m sure you’re aware that there is a secular shift underway in the restaurant industry. By all appearances, health- and status-conscious consumers are moving away from traditional fast food – think McDonald’s and Burger King – in favor of slightly up-market, quick-service and casual-dining restaurants. Especially, those regarded as offering fresher, healthier, more eco-friendly – and frankly, tastier – options. Again, this is old news.
The more important, largely underappreciated trend, we believe, is what we would call a generational shift in attitude among diners in general. We’re less concerned with how diners choose among the ever-increasing options available, as we are with the evolving manner in which Americans view the idea of eating out in general. In our view, the trend is moving away from preparing and consuming everyday meals at home toward eating out more and more at restaurants.
As important, it’s a trend taking hold across generations, though for varying reasons. Millennials because it fits their values and busy lifestyles. Empty nesters, boomers, and Gen X’ers because they simply have more disposable income, and are in some cases getting older and less up to the hassle of cooking and cleaning. Unlike culinary tastes, which might yet prove cyclical in nature, we don’t see this trend that will reverse course any time soon.
If we’re right about this – and our confidence is high – it’s a boon for the restaurant industry (and for investors who hold their shares). Still, not all concepts will prosper equally. Or even survive. As always, you have to be selective. So let’s take a look at three opportunities I believe are uniquely positioned to cash in on this long-term secular trend.
If you haven’t been to a Denny’s (DENN), I bet you’ve heard the name. The South Carolina company has been around since the 1950s and is one of the nation’s largest full-service restaurant chains, with more than 1,700 locations in the United States, Canada, Mexico, and a dozen or so other countries.
This last tidbit is important, as management is increasingly looking overseas for growth. Particularly in the Pacific Rim and China. Two somewhat unique factors set Denny’s apart from its newer competitors. First, the company unabashedly caters to an older crowd, which among other things increases customer loyalty. Second, while newer entrants are heading up-market, Denny’s makes no bones about serving lower-to-middle income diners — folks who are more likely to turn out as the economy and their economic situations improve.
Denny’s is a mature operation, but don’t get the wrong idea. The growth is there. Same-store sales have routinely improved quarter after quarter – while margins remain strong and improving. The balance sheet, while not pristine, is solid and improving. While valuations — particularly as measured by the revealing ratio of price to earnings to growth (PEG) — are downright reasonable. Especially when compared to its peers in the industry.
In short, there’s a lot to like about Denny’s. It’s a proven concept, extremely well managed, with a loyal customer base and strong underlying fundamentals. It even has some elements of a turnaround story. The fact that it’s not very widely followed on Wall Street is just fine with me – especially given the stock’s market-beating performance. Take a look when you get a chance and consider opening a position at today’s prices with confidence.
If you bought this one 10 years ago when my mother first brought it to my intention, you’re up more than 250% — better than three times what you would have earned owning the S&P 500. That’s not bad for a concept that’s been around since the 1970s. Then again, if you’d bought when Peter Lynch published his “One Up on Wall Street,” you be sitting on nearly 10 times your original investment.
It might be a bit much to ask for another 10 times your money from here, but at a market cap of just over $3 billion, there’s plenty of room for future appreciation. You may have guessed I’m talking about Cracker Barrel Old Country Store (Nasdaq: CRBL), one of my mother’s “core recommendations.” Especially if you’ve spent any time in the South where the concept is particularly popular – though the company has locations in 42 states across the U.S.
It takes one visit to see why fans are so loyal. Unlike many of its peers, Cracker Barrel refuses to franchise its restaurants. Arguing that consistency is paramount – something that regulars appreciate. Like Denny’s, Cracker Barrel has continued to grow its revenues and earnings in recent years, and generates a generous return on shareholder equity – a clear sign of effective management. Not surprisingly, analysts have rushed to bump estimates higher.
None of which has been lost on the share price, which is up nearly 40% on the year, despite a recent pullback. Again, as with Denny’s, there’s a lot to like here. Especially now that shares have pulled back modestly in recent weeks. If you’ve got one in town, have a look. Then check out the shares. Take advantage of the near-term weakness, collect your market-beating 4% yield and wait for the gains to roll in.
If Denny’s and Cracker Barrel strike you as a bit tame, this one’s for you. Even more so if you’re a fan of sports and beer and television like I am – or I should say televisions. If nothing else, Minneapolis-based Buffalo Wild Wings (Nasdaq: BWLD) is a full frontal assault on your senses — and not just the wings, which run the gamut from downright sweet to fire in a basket. Things really get rocking around major sporting events, particularly local college football and basketball rivalries, the NFL playoffs, and perhaps most of all, the NCAA Final Four. Put plainly, the place is a blast.
The stock is, too. Since the company’s IPO in 2003, shares of Buffalo Wild Wings have soared more than 1,300%. But don’t worry. Even as the company has expanded to nearly 1,000 locations – fairly evenly split between franchised and company-owned stores — there is plenty of room for growth. And growth, led by dynamic CEO Sally Smith, is on the menu. So, too, are some new offerings designed to expand the restaurants appeal and bolster the workaday lunch crowd. But make no mistake. At heart, Buffalo Wild Wings is about beer … wings… and sports.
As a result, the company is prone to speculation and handwringing over labor and commodity costs – specifically chicken wings. This can make for an interesting ride for investors, though historically concerns have been overblown. Providing new investors opportunities to open positions at temporarily discounted prices and existing shareholders to add their long positions. Especially on days when pundits like Jim Cramer get shrill over largely meaningless short-term blips.
That said, the stock pays no dividend and consistently trades at more than 25 times earnings. As such, Buffalo Wild Wings is a growth story, not a value play. Then again, it never really has been a value play – yet investors have been rewarded handsomely for their perseverance. I guess you could say that like its restaurants, Buffalo Wild Wings is for the bold investor. Don’t be afraid to open a small position and enjoy the ride. You’ll be glad you did!
I can’t tell you how it saddens me to hear that hardworking Americans are losing interest in investing. The fact that you’re reading this report tells me that you haven’t totally lost your religion. But I don’t just want you on board – I want you chomping at the bit, like I am. If you ask me, this is the No. 1 benefit of Peter Lynch’s (and my mother’s) approach to finding great investments ideas. The pure excitement and thrill of it!
Plus, when you’re investing in companies you know and love, researching your investments is less like work and more like fun. And as you know, we’re much more likely to pursue endeavors we enjoy than to “do our homework” or “take our medicine” because it’s good for us. My personal goal in the coming year is to get as many investors like you to fall back in love with the thrill of investing. In the process of my life’s mission to reclaim the American Dream!
There is, however, one small, but important, thing I want you to consider before you invest. You really can find your next life-changing investment almost anywhere – at the mall, at the beach, or on the playground. But not every company whose product you love is a great company – and not every great company is necessarily a great investment. Remember, even Peter Lynch did his research. You can do it, too. And if you’re not convinced, no worries. You don’t have to go it alone!
You see, when my mother discovered Cracker Barrel and Burlington Coat Factory, she didn’t just run out and buy the stocks. She called me. I was happy to check the story out for her. Just as I would be happy to do it for you. I mean that.
If you’re not 100% comfortable digging into the fundamentals of your favorite companies — or if you’re not 100% confident in your valuation chops — I have a unique solution I want you to consider. Even if you just want extra confirmation of your ideas. You’re smart to think that way. That’s why I have a team of analysts supporting me at my own firm, after all. If you’re interested, I’d like to put them to work for you.
If you do, I assure you it will be unlike anything you’ve experienced before. You’ll enjoy unprecedented access and insight into my investment process, which draws heavily on the combined resources of my position in the financial and mainstream media – and my “tuned-in” status and connections as a practicing Wall Street professional.
Including my very best, most immediately actionable investment ideas and active portfolio guidance you simply can’t get anywhere else — perhaps short of enrolling as an institutional client of my independent research at a cost of thousands per year.
As important, I’ll be on hand – alongside a small number of qualified individual investors – to discuss your ideas. You can rest assured, knowing that you always have the latest, up-to-the-minute guidance on all your portfolio holdings – the type of coverage only an established equity research can provide.
You can see why I expect interest in my unusual project to be high. I can’t wait to tell you more about it, including what makes it so unique and the benefits you can expect if you decide you’d like to join us.
Please keep your eye on your inbox for more information and details over the next few weeks. I’ll also forward more reports like this one just as soon as they are ready.
Beginning with my next report detailing three specific investments you can make today as your first important step to help you profit regardless of what the dirty players on Wall Street throw at you.
Then be sure to be on hand on Wednesday, May 20, 2015 for an important announcement from me – and your personal invitation to join me in my unusual wealth-building project.
Editor, Smart Talk