“Seven Times More Profitable Than Apple with Zero Competition”

What's Cabot's August "Stock of the Month?"

By Travis Johnson, Stock Gumshoe, August 20, 2014

Now that Apple is a few weeks from the release of their next i-device, lots of teasers will come floating out about “better than Apple” or “buy this before Apple’s new iPhone” or the like. That’s a pattern we’ve seen ever since the original iPhone sent shares of suppliers soaring — or, indeed, even before that when suppliers to the iPod (remember when that was the world’s breakthrough “must have” product?) could double in a matter of weeks.

But this time our “more profitable than Apple” stock has, well, nothing to do with Apple at all. This is a teaser pitch for the August “Stock of the Month” from the Cabot folks, who similarly tease us most months about the next hot stock on their radar — Cabot Stock of the Month is one of those “entry level” newsletters that tries to take the best idea from across a publisher’s stable of letters and share it each month. Last time we looked at this letter a couple months ago it was teasing Qualcomm (which is an Apple supplier, coincidentally), which is a fine stock but fell after their last earnings result because of soft forward guidance… so what are they teasing this time?

Here’s how they get us interested:

“Just Look at My August Stock of the Month and You’ll See Why I Can Make You this Money Doubling Guarantee

  1. This company is riding a wave of unstoppable growth that’s already made it seven times more profitable than Apple, handing investors 1,446% annual average gains since March of 1992. That’s enough to turn a $10,000 investment into $3.2 million!
  2. Analysts expect the company to deliver another double-digit earnings surprise not only for Q3 but also for FY 2014—all while they’re projecting another 21% earnings growth for FY 2015.
  3. When you add to that the fact that the company has virtually no competition in its space, you can see why I’m willing to back this recommendation with a 12-month guarantee.”

And some specific clues? You betcha — here’s what they give us:

“… this is the kind of company that Ray Kroc worked for before he founded McDonald’s $75 billion empire.

“But instead of selling milkshake mixers across the country, the family behind this monopoly-like fortune manufactured and sold ovens to restaurants.

“Today, they’ve expanded their operations to not only making dishwashers, refrigerators, freezers and ice machines but also mixers, slicers, shredders, drink dispensers, and ventilation systems”

And they provide a long list of their customers, including pretty much every fast food or fast-casual restaurant chain you’ve ever heard of, and say that…

“… they dominate this sector no differently than Apple dominates digital music, Sirrus dominates satellite radio, and Space X dominates commercial space in the United States—only their profits are much, much bigger.

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“So it’s no wonder that the world’s top 20 institutional and mutual fund holders own nearly $8 billion worth of this company’s shares.”

So who is it? Thinkolator says it’s certainly Middleby (MIDD), which has been around for 126 years after starting as Middleby Marshall, a producer of industrial-strength “movable ovens” (think assembly line).

And this stock always makes me a big grouchy, because I owned it back in 2005 at around seven or eight dollars a share (split adjusted) and sold most of it at a 100% gain a year or so later because it was getting a really pricey growth valuation (I had bought it because I thought it was cheap). A quick look at the chart will tell you that after it fell back down to $8 or so during the financial crisis it proceeded to become one of the great growth stocks of the last five years — getting over $100 a share for a while before coming back down to the current mid-$80s. I’ve glanced at it a few times along the way, but the weight of my personal experience with the stock (“I missed it”) has kept me from getting back in.

Which is a personal failing, I recognize. One of the many psychological things that keeps us out of good investments. But recognizing the mistake doesn’t mean I can always avoid it.

Middleby has been brilliantly built through acquisition by CEO Selim Bassoul.. and they’re not quite a monopoly provider of food service equipment, but they do get awfully close to that in some segments, particularly when it comes to their quick-cook ovens or conveyor ovens that you see in pretty much every fast food place or food court. They’ve been growing earnings at a 20%+ clip pretty consistently for years, and analysts think they’ll continue to grow earnings at 20% or more a year for the next five years (though it’s expected to be down from that slightly in 2014, with growth of 17% anticipated).

So it’s definitely a growth stock, a play on the continuing wave of restaurant growth around the world and the need to continue upgrading and making restaurants faster and more efficient… and more recently, with their acquisition of Viking, it’s become somewhat of a play on housing. And it’s priced as a growth stock at about 26X earnings.

If they are able to come anywhere near those analyst growth estimates (and the next year’s estimates have been rising lately), then that’s actually a pretty nice price to pay for the stock — and a $5 billion industrial stock that’s growing earnings at 20% and has been consistently very well managed for a decade, well, that’s nothing to sneeze at… but they probably do have to keep the acquisitions train going if they’re going to continue to grow like this. (Yes, I thought they were going to start having to see growth tail off eight years ago, too, since they were looking expensive then at 30+ times earnings, but growth has kept rolling right along).

As a growth stock, they’ve had some big ups and downs — up big when they beat on earnings back in February, down pretty sharply when they disappointed on earnings three months later — but over the long run it has worked out pretty well. I think I first hear of it from Tom Gardner at the Motley Fool back in the early 2000s when it was a small cap stock, maybe in 2003 or 2004 (I don’t think I’ve written about them since Stock Gumshoe launched back in 2007) … so if he’s been recommending it all along the way that’s been a nice ride.

Of course, I’m still bitter… so take your own opinion on this one and let ‘er rip — use the friendly little comment box below if you’ve got a perspective to share on Middleby.


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AllanTrends
Irregular
👍74

Bitter? You call that bitter? I bought AAPL in the 1990’s at $13, held for a year and sold out at $26, thinking I was master of the universe and then refused to buy it back to this day. Now THAT’s bitter.

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gummydave
Member
👍347
gummydave

Wow, I was just going to agree with Travis, having also sold MIDD way too early. But I think you “win” this one Allan. At least you just made the rest of feel a bit better 🙂

matt
Guest
matt

Ditto. I bought AAPL in the 1990’s at $13 also. I sold at $70 thinking I was a friggin’ genius. I looked at AAPL a few years ago in the high 100’s thinking no way it was worth almost two hundred dollars. Yeah, I’m a friggin’ something alright…

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Eric
Guest
Eric

Apple is up over 4400% in the last 10 years meaning a $10,000 investment 10 yrs ago, would be worth close to $500,000 today. Compare that to Google’s gain of 1900+% as it celebrated ten yrs this week as a publicly traded co.

cxtboyko
Member
👍18
cxtboyko

OK, got you both beat, boys. I bough Apple at around $20 back then and sold it AT A LOSS during a small pullback. Same for Starbucks. Poor, naive me.

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retireby52
Member
👍13
retireby52

Yep who was it that said the better the company the higher the chance that you’ll sell too early. I wonder if PCLN will be one of those for me since its already up 30% since I sold it. Even worse I sold LNG.AX at around 60c about 3 months ago and its now at around A$4 with I think Seth Klarman recently buying

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Bob Baker
Guest

Matt,
All we can do,is learn from our past mistakes.
Since June, people have a rare opportunity to buy AAPL at still a low price.
Those who do, I believe will be happy at Christmas time.

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jonomalley
Member
👍87

Thanks for brightening everyone’s day, Alan! 🙂 I’ve been watching MIDD for a year after hearing about it from the Fools, and i kept waiting to buy it on a good dip, but it seems to hold pretty steady. The day I finally decided to pull the trigger, about ten days ago, I opened my etrade app to buy it and behold: a 15% jump (commence throwing iPhone). I remember watching Tom Gardner of the Fools interview him. One statement really stood out: he’s mentioned realizing he had become a 10 bagger in the past decade and was very determined… Read more »

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gummydave
Member
👍347
gummydave

We can all beat ourselves up over these things. The best approach seems to be buy a little even if a stock seems expensive, then add to it over time and perhaps sell in portions on the way out as well. Oh well, I guess that’s why alcohol was invented.

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Anthony Alfidi
Guest

Middleby is really a play on the continued growth of fast food chains and casual restaurants. Consumer discretionary income is the number one factor driving the ability to dine out. Consider whether that is sustainable through the next financial crisis.

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Iris Brouwers
Guest
Iris Brouwers

It’s true, we all have owned stocks at some point, that skyrocked at some moment – alas MANY momets after we sold them. Who cares. That’s why rule no. 1 exists, when you dabble in the stock-market : Do not invest any money, that you need (sooner or later), but instead “play” with extra, free cash, so it won’t give you any slepless nights.
(I’ll go and have a look at Middleby now ;-))

chibana
Irregular
👍1417
chibana

Iris,
Spot on. Tough not to lose a little sleep once in awhile but as long as any loss will not dramatically impact your quality of life; that is the amount to invest.
V/R
Tom

Allan F.
Guest
Allan F.

Bitter, I got all you guys beat. I bought Nortel,(NT), @ $8.00 and did not Sell @ $124.50, cuz I thought it would go to $140. I have since learned, “Take the $$$$”.

machanhubby1
Member
👍22
machanhubby1

Travis, I am still bitter also and I surely know how you feel about selling Middleby too quickly. My story may be even more harsh… back in 1986-87, I was a young and tender stock investor, just barely knew the way to the bathroom at that point. I was stationed in Japan working for an American J-V company, no internet, new to PCs, etc, etc. I asked my (brand new) stock broker about getting some IPO shares of Msoft. This was Merrill Lynch – Japan. They just laughed at me. I was looking for 100 shares. So I forgot about… Read more »

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retireby52
Member
👍13
retireby52

Yes I bought some ARM holdings shares and sold about 20 years ago too afraid to see what they’d be worth today

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c193
Irregular
👍54
c193

I sold FB at $33. Major brain fade on stop loss. Don’t even ask me about JNJ.

india white
Guest
india white

Bought and held DEO for years as dividend payer. Missed MIDD the first time, have it now. Sold AAPL in 99 after a quick double. I did buy NXPI as a play on AAPL several years ago and it has done well. Prefer AMT as a cellphone play, not gadget makers.

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retireby52
Member
👍13
retireby52

Liked and held AMT too but ended up selliing around 90 due to high valuation

Quincy Adams
Guest
Quincy Adams

The last time AAPL was selling for $26, it was priced around 100X cash flow. The turnover on the stock was 25% per month! Almost no one purchased it as a “buy and hold”. And no one should cry over selling at 100% profit. When I buy a stock at $26 and have to sell at $13, that’s when I drag out the scotch. Skoal!

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blufox
Member
👍13

I believe MTW to be a much better buy as they own a restaurant supply company which they might spin off and which is possibly worth more than 4 billion. Relational Investors has invested in MTW.
/* Philip */

mary
Member
👍789
mary

Thanks for all the stories about selling too soon…LOL! I won’t bore you with my NFLX and JNJ flubs but am glad to be in good company. I’m bitter too and refuse to even look at them anymore!

Dennis
Guest
Dennis

Do you want to hear about bitter with a twist ..I bought 1000 shrs of BRK-A (that’s Bershire Hathaway the one Warren Buffet runs ) back in 1960 when it was only $1000 a shr and recently sold when it hit $200,000 a shr thinking it might be getting a bit top heavy and just yesterday saw it was over $203,000 a shr. That’s $600k I literally flushed down the toilet by not holding a few more days. I did make $200m but after capital gains I might have to settle for the 90 ft yacht with live on staff… Read more »

bud
Guest
bud

OMG! Po po you! I’d sttle for 100M!

Bob Baker
Guest

Dennis,
You are a good story teller. A good FICTION story teller.

Dennis
Guest
Dennis

My secretary has just informed me that I flushed $3m down toilet not $600k . Im so distraught I cant even add correctly. Oh the pain …. Definitely the 90 ft yacht and look for a new secretary.

Bob Baker
Guest

Dennis,

This site is not a joke. It should be for serious commentary, in all candor.

pjwa
Member
👍85
pjwa

You also told us that you ‘literally’ flushed the $600,000 down the toilet. Hope it was not an entire three million of your impressive gain!

cxtboyko
Member
👍18
cxtboyko

Did it clog your toilet?

philippe
Guest
philippe

Guys, 1. When you sell stock and take a profit. You should say “thank you”…not “I missed out on an even bigger profit.” 2. If you are going to by a stock, ask yourself, at the start, is it a trade or is it a long term core position. If the former, set your price targets and sell…if the later, then you should be wanting to gift it to your grandchildren. 3. Re specifics, this is an industry that will see a lot of long term growth from 3 areas. a) better manufacturing techniques (think 3d printing among others) b)… Read more »

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baygreen
Member
👍30

Don’t complain is www. the doctor ordered.com you got profit and left some on the table well a lot but you can still go back to the table just cost more to order seconds, could have sold for a loss and then bought more thinking bottom and sold for a loss again. But I do appreciate the honesty of saying what you did, the armchair play caller did not get Mondays newspaper on Sunday but still won the game. Greed comes with a discount that you can’t count because it is all gone accept your honesty that is a or… Read more »

David Grumbling
Guest
David Grumbling

Travis..You did it again!! As I opened my mail folder, I saw Lutts’ teaser, and almost right next to it was your solution. Thank you for allowing me to save time by just deleting his email. By the way, has anybody figured out how much money could have been made if Lutts’ 1440% per year was real? That’s fourteen times your money the first year, times fourteen times that amount, times fourteen times that amount, and so on, 22 times!! That’s an infinite number that is at least 23 numbers long.

Bob Baker
Guest

Travis,
I appreciate your candor, & will check out this MIDD.

As for AAPL, or any stock that has risen that we failed to get aboard, or gotten off prematurely, there is always tomorrow. We can’t go back, but we can learn from our mistakes and go forward. That’s what I did, when I didn’t buy AAPL until last year. I have
gotten some in the last 3 months, and plan to “put in a draw” and just hold.

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prettyraymond
Member
👍4
prettyraymond

Woulda, Shoulda , Coulda, we all have that story. Mine is PCYC. But we should never lose sight of the fact that taking profits is inherently a good thing. Patience, in the long run will always overcome GREED. It’s a grind out there people. One more thing, think about all the money you saved by by becoming an Irregular, money saved is money earned . Thanks Travis

i

jjdulian
Irregular
👍12
jjdulian

Money saved is even better than money earned–it’s not taxable.

Frosty
Guest
Frosty

To heck with all the “missed it by that much” stories Whats the next APPL?

Bob Baker
Guest

You need the next AAPL, buy AAPL now and hold it!

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who noze
Guest
who noze

itmtw [manitowack] makes kitchen ware and consruction items like crawlers

dunnydame
Member
👍948
dunnydame

Don’t feel so bad about those sales, fellow gummies. Here’s what would have really happened (NOT NECESSARILY IN TRUE CHRONOLOGICAL ORDER): You’d have looked at your unbalanced portfolio and like the prudent investor that you are, you would have seen that you were top-heavy in say, MSFT, and you’d say to yourself, “Let me rebalance my portfolio, sell some of those MSFT shares & buy some of those nice Worldcom shares.” Then later you’d have noticed being top-heavy in WMT & MSFT (still) and would have felt the need to sell more stock & diversify into Countrywide Financial & maybe… Read more »

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mary
Member
👍789
mary

LOL!!

Dave
Guest
Dave

Now I know Penelope is joking. But, if she has a better MO, I’d like to hear it.

c193
Irregular
👍54
c193

I actually made a bit of money moving in and out of HealthSouth!! The last time I was in, I bailed with a loss, but still overall cleared some profits. Good times!

John Bronson
Guest
John Bronson

Buy all the FNFG you can and you will be rewarded bigtime. Why? Insiders know and I bought a lot recently. They are cash loaded, and could see more than one major go after them. Rumor has it someone has an interest. Look at insiders.

eugene11803
Member
👍62
eugene11803

Today, Cabot said that now was not the time to buy MIDD. Strange. He said it was recommended weeks ago and they made a good profit on it. Strange. Looking at the chart, It looks like it goes up and down and it is due to go down shortly. Maybe.
I won’t bring up the chances I had to buy crummy real estate in the worst neighborhoods in NYC. A warehouse in “the Bowery” in NYC that was bought for $100k in the 80s just sold for $21mil!

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