“Priority One: Fix the Economy
“Now, with an estimated $850 billion projected to flood the market, here are the sectors you need to watch and 3 companies you need to know about right away. Why? Because they could make you very, very rich in 2009…”
That’s how the latest (loooong) ad for the Motley Fool Stock Advisor newsletter begins — Stock Advisor, for those who don’t know it, is the flagship newsletter of the Fool, with each issue featuring competing picks from brothers (and Fool founders) Tom and David Gardner.
And they’re not about to miss out on the opportunity (both for making money, and for selling newsletter subscriptions) that the expected stimulus windfall might provide.
“For serious investors, it could mean the opportunity of a lifetime.
“Because if you’re looking to build real wealth in 2009 and beyond, you won’t want to ignore where all this money is going.”
Now, I’m personally more of a “wiseacre investor” than a “serious investor,” but who am I to shrug at the “opportunity of a lifetime?”
The Fools go on to say that big government investments are what really spur investment booms — they give a couple examples:
“A look back in history shows that most major U.S. industry booms started when Washington began signing checks for research and development initiatives… offering generous tax subsidies… and establishing production mandates…
“Back in the 1940s it was the defense industry…
“In the 1950s and 1960s the electronics, auto, and aviation industries soared…
“In the 70s it was all about oil…
“And the 80s is when the technology and computer boom began…”
Interestingly enough, with this particular ad they’re apparently not touting “alternative energy,” which has been the focus of other Obama-oriented investment teasers from the Motley Fool and others. They’re talking about some other initiatives that are related to government stimulus and investment programs.
Here are the three teasers for individual stocks, along with some answers …
“Investment #1 in Obama’s 100-Day Profit Plan
“There’s a good chance you’ve never even heard of this company before, though it’s listed on the Fortune 500 and its history dates back over 100 years.
“For decades, it’s commanded a top spot in the transportation sector where it plays a leading role in the construction industry.
“In fact, this company is a top player in the market for transporting construction equipment and materials….
“They have a stellar history of being great stewards with shareholders’ money…
“Like generating a strong 22% return on equity and paying out a quarterly dividend every year since 1941.
“… recently this company and its smart management were able to grow its profit over 15% year over year.
“… with the market’s recent sell-off, this company is selling at a bargain-basement price.”
So, the Fools think that this is a “stock that could easily double in 2009.” What is it?
This one is a bit of a guess, but I’ll throw out a possibility: PACCAR (PCAR).
This is a truck-making firm, they build Peterbilt, Kenworth and a few other brands, and have a big chunk of the new truck business in the United States. The trucks they build could certainly transport materials and construction equipment.
They have the “strong 22% return on equity,” and the company is over 100 years old (founded in 1905) and has paid a dividend since 1941, so it’s a reasonable guess — but I don’t know of a recent quarter when they’ve reported 15% earnings growth to match that clue. Earnings and profits can be funny numbers, so it’s possible that this is technically true for some recent quarter that I haven’t investigated (and they’ve certainly had many quarters of growth at much higher levels, just not in the last nine months or so). PCAR has been a very long term grower, though annual earnings peaked in 2006 with the big wave of replacement trucks to meet new diesel emissions rules, and have been a bit lower since.
And I do know that this stock was in the Fool’s Stock Advisor portfolio at least as of November, and they rarely sell stocks so it probably is still there. It’s not expensive on current earnings, but whether or not they will benefit from stimulus spending that could possibly increase demand for heavy trucks is a bigger and broader question that I certainly can’t answer.
Let’s look at another one …
“Investment #2 in Obama’s 100-Day Profit Plan
“This company plays a unique role in the construction industry…
“They supply hundreds of thousands of parts and tools almost every construction company uses each day.
“And with a market cap of just over $2 billion, this small player is quickly becoming the “go-to” just-in-time partner for the many construction outfits that make up the $140 billion materials market.
“Customers already love this company’s same-day shipping and competitive prices….
“This company also has a history of doing right by its shareholders, including generous stock buybacks and consistently paying a quarterly dividend (in fact, it’s getting ready to send out more than $12 million to its shareholders in just a few weeks).
“Another thing I like about this company is the fact that several key executives own significant stakes in this business…. Including one insider alone, who owns more than 18% of the shares outstanding.
“If you’re interested, I suggest you act quickly on this stock, because it’s already on the move… in fact, it’s up about 20% in just the past few weeks.”
OK, so this one’s a bit of an estimate, too, but I’ll wager that this is MSC Industrial Direct (MSM).
This is a distributor of all kinds of industrial tools and supplies, and they do have a “same day shipping” guarantee and focus on customer service. They’re also valued at just over $2 billion and have had some periods of “several weeks” when they were up 20% in the last couple months (it’s hard to guess exactly when the ad was written). They do consistently pay a quarterly dividend, and if you include the Class B shares then the dividend for this next quarter should be a bit over $12 million (maybe closer to 13).
The insider ownership issue is a bit more odd — if you look at the basic insider statistics on any financial portal it will say that the only big owner is Lone Pine Capital, which owns about 11% of the company. But dig a bit deeper, and we see that this is really a family-controlled business. They also have Class B shares, which are convertible to Class A shares at the owners preference and which all appear to be owned by Chairman of the Board Mitchell Jacobson and his family. There are about 18 million Class B shares, each of which carries 10 votes versus a single vote for each A share. There are about 44 million of the regular Class A shares. If the family sells any Class B shares, they automatically become Class A shares, so the insiders are certainly in control here.
This took me too long to figure out as it was, so I’ll just add that I know this company is a recent holding of the Stock Advisor newsletter portfolio (thanks to their disclosures in their free articles), and it is a pretty good match for the clues. Can’t be 100% sure, but it is an interesting company — I’d expect them to be pretty cyclical given the business they’re in, largely industrial supply, but know very little about their business prospects otherwise. It’s not rock-bottom cheap, and they were just upgraded by Jefferies today, so there must be something there to like … let us all know if you’ve got info to share about MSM.
But I have to move on to the next one …
“Investment #3 in Obama’s 100-Day Profit Plan
“Another key initiative in President Obama’s economic stimulus plan is computerizing medical records for all Americans.
“After all the technological advancements we’ve made over the past few decades, it’s almost unbelievable that two-thirds of our hospitals and 90% of all U.S. doctors still rely on paper patient records.
Now with the U.S. population topping 300 million, you can easily see how this type of technology mandate will not only produce better and more efficient health care, but also a huge windfall for key health technology companies.
“In our extensive research over the past few weeks, we uncovered one tiny software company that’s already built a strong position in large medical and dental practices….
“Sales have grown on average 28% per year over the past 5 years…
“Its return on equity is a stellar 35% and…
“The stock has rocketed more than 700% over the past few years…
“Right now its balance sheet is rock solid with more than $67 million in cash on hand and absolutely no debt.
“And while most businesses were struggling to survive in 2008, for its quarter ending October 31, 2008, this company posted record revenue… up more than 30% over the same quarter for the prior year.
“A revenue jump that helped boost its stock price 20% even as the S&P 500 fell 38% over the same time period.
“… almost 35% of its outstanding shares are owned by insiders.”
Interested? I can be a bit more certain about this one — this is …
Quality Systems Inc. (QSII)
Quality Systems has been one of Tom Gardners claims to fame for many years, since he enjoyed that nearly 700% rise from some of his early recommendations of the stock. It is indeed a software company (which almost always means high margins) that helps medical and dental offices “electrify” patient records. The clues all match, it did have 30% sales growth last quarter (about 8% earnings growth, just FYI); it does have about 35% insider ownership; they do have $67 million in cash and no debt.
This is a sector that’s getting quite a bit of attention lately — electronic medical records are a significant push of the Obama administration, and may be part of the healthcare bit of the current stimulus plan, but this big “push” has been promised for at least a decade. Perhaps we’ll finally get there now as the dire need for more efficient healthcare spending comes to the forefront of government priorities.
QSII is certainly not the only company at the front of the line for this business — the one that’s gotten most of the attention lately is Athenahealth (ATHN), which is the current “growth darling” of the market to capitalize on this trend. QSII is more of a software provider to individual offices, ATHN more of a service provider, with a web-based system for electronic records. Both are priced at substantial premiums to the market, in accord with their above average growth rates.
So — do you want to buy any of these? Should the track record of the newsletter color your choice?
The ad says that “right now Motley Fool Stock Advisor is outperforming the market by 29%…”
That’s the Fool’s own cumulative number — for the last year, according to Hulbert, Stock Advisor performed almost exactly the same as the broader market (he uses the Wilshire 5000). Over longer periods (3-5 years) it has beaten the market by a percentage point or so per year. Hulbert’s math also tells us that their portfolio took on slightly less risk than the broader market, for whatever that’s worth.
Some interesting picks from the Fool in the construction/infrastructure and medical information sectors, and I know that they’ve been shooting out ads that cited their interest in both PACCAR and Quality Systems for quite some time (I think MSC Industrial is a more recent addition to their quiver).
Anything right for your portfolio? Well, as always, that’s your call — go forth, researchify, and let us know what you think!