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Buried Treasure in the BDS |
Lessons From Joe
“How’s business?” I asked.
Joe’s answer surprised me. “Never been
better.”
Joe as you may recall from earlier IDE posts
is the proprietor of my favorite upscale cigar bar. He has an extensive
wine and beer menu and a wide assortment of top shelf spirits. Cigars
are priced from a low of $5 to over $25 a stick.
“Hasn’t this recession hurt you at all?” I
asked.
“Nope” said Joe while knocking on wood. “It’s
not that my customers haven’t been hurt by the recession. They have.
More than a few have lost their jobs and business seems to be down for
most everybody. But not here.”
“Good for you Joe.” I responded.
Joe continued, “You know what it boils down
to? In times like these, as folks tighten their belts, the last thing
people are going to do is to give up drinking and smoking. This business
is recession proof.”
S&S Sells
Some products sell well – even in the middle
of a recession. As an investor, you won’t fall in love with these
products. You won’t find iPods or Blackberries among them. Nike doesn’t
make the list. And forget about Rolex watches and Tiffany necklaces.
But Philip Morris sells them. So does Clorox.
And Constellation Brands.
The products these companies sell fall under
the category of “staples and sin” (S&S).
Philip Morris sells cigarettes, including
their signature brand Marlboro. Clorox sells boring cleaning supplies.
And Constellation Brands sells wines (Mondavi, Ravenswood), spirits (Olde
English), beers, and soft drinks. (Soft drinks? How did that get in
there?)
In the middle of a consumer meltdown, these
are big retail winners. They may not be the very cheapest brands you’ll
see on the shelves, but they provide good value. People keep buying them
– and their global sales keep going up.
The Other Winning Factors
If it were just a matter of price, Genesee
Beer would be doing a lot better than they are. But the S&S companies
I’m talking about have more to offer than that ...
The Market Is Never Right
You’ve heard just the opposite, right? That
the market automatically weighs all the information out there in order
to arrive at the “correct” price for a stock.
It’s a very elegant argument – and also very
wrong. It’s called the “efficient market hypothesis,” and it’s one of
the biggest pieces of B.S. that ever came out of academia (in this case,
the Chicago School of Business).
The market is never right. That’s my story,
and I’m sticking to it.
I’ve seen the market get carried away a
million times, selling companies short or pushing prices up far past
reasonable levels.
And why are many of the big, global S&S
companies going for a discount these days? Because the market never gets
it right.
The suckers buy the overpriced companies that
have been going up forever. You get to buy the companies the market is
ignoring and are, therefore, going for a 10-30 percent discount.
The market is never right. That’s how you make
money.
4-5 S&S Retailers Can Recession-Proof Your Portfolio
I asked my colleague Andrew Gordon if he had
any specific recommendations for outstanding S&S companies. Here’s what
he said ...
“One ‘value’ retailer I know increased sales
by 5.1 percent in September. That’s smokin’ compared to the vast
majority of retailers whose sales have declined. And if the U.S. doesn’t
rebound next year (like many expect), this company will still be posting
sales gains. There are about 4-5 retailers that look irresistible right
now. This is one of them. It’s doing better than 98 percent of retailers
in the U.S. And its European and Asian outlets are outshining its U.S.
sales. By the way, its price is still cheap.”
If you’re interested in what Andy has to say
about safe and profitable investing, click
here.
Buried Treasure in the BDS
IDE’s Rusty McDougal came back from the
Arizona desert on Sunday, believing he had just spent the day with his
next 1,000 percent winner.
That’s Rusty’s niche – figuring out which
small exploration companies have what it takes to find buried treasure
... gold, silver, oil, uranium or rare earth elements.
Most of the small companies don’t measure up.
They don’t have the expertise, money, patience, or the right property.
But this company impressed Rusty, from its Harvard-trained CEO to the
proprietary databases they use.
Usually, Rusty keeps his reports between
himself and his subscribers. But he’s letting me share this one with you
... just this one time. In his 17 years of doing this kind of analysis,
Rusty can’t remember seeing a project quite this big. “The term Big
Damn System was repeatedly used during the tour, and a few fellow
analysts took to calling the project BDS,” he said.
Rusty thinks there’s lots of buried treasure
in Arizona. How much depends on just how far out and down
you want to go ...
“A very recent drill was continued to 230
meters instead of the planned 150 meters due to the gold hosting rocks
still being present. An old drill hole went over 800 meters and
was still finding these gold-hosting rocks. The rocks that hold the gold
mineralization are whiter to the eye than the surrounding rocks. These
white rocks can be seen for 2 kilometers in one direction.”
The company’s market cap is only $12 million.
And Rusty says, “It’s not unusual to see proven gold deposits [like this
one should develop into] go for $200-250 million.”
In other words, the company could be sitting
on gold deposits worth up to 21 times its present value.
(Rusty is thinking karma here. “The property
is a mere 100 miles from where I grew up many decades ago,” he told me.)
For information on Rusty’s Resource
Windfall Speculator, click right
here.
Invest Safely,
Bob Irish
Investment Director
Investor's Daily Edge
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