Lots of readers have been sending questions our way about Porter Stansberry’s new high-cost Stansberry Venture Value newsletter, which is his attempt to build a service that essentially recommends small cap value stocks for long-term compounding value.
An admirable goal, and I guess we’ll start to learn in the coming year or two how it’s going so far — he says in his new promo for this service, which he describes as a search for “10X Stocks,” that he is making the first two recommendations right now… and readers are curious about what those might be.
Most folks aren’t going to plunk down $7,999 for a lifetime subscription to something that was just launched (that’s what Porter is charging for “charter” subs — for $7,999 plus annual $299 renewals you get Stansberry Venture Value, the new service, along with their other high-end newsletter, Stansberry Venture Technology (which is Dave Lashmet’s letter, it took the place of the old Phase 1 letter Stansberry previously offered, which focused on illiquid mining, biotech, tech and other small cap picks, and has been through a number of editors over the years).
I’m a little skeptical that they’ll be able to consistently sell a high-cost newsletter built on a long-simmering idea like “capital efficient small cap value, with compounding power” — so it probably makes good business sense that they’re doing this as an up-front “lifetime” charge. Most investors, regardless of whether or not they know that they’re being crazy, prefer to chase hot stories… and small value stocks are almost never hot stories, if they do provide 1,000% returns it’s almost always over decades. But, well, if anyone can sell it it’s probably Porter — he’s certainly built a massive and successful business on the back of his fantastic ability to sell newsletters.
But that’s beside the point — the question from readers is, what are those initial picks that he’s making? I don’t know that I can give you a definitive answer, he’s a little tight with the clues in this pitch… but we’ll see if we can at least come up with some guesses for you on this Friday afternoon.
Porter launches with a look back at the companies that could have provided you with 1,000%+ returns over the last 20 years or so — and he discards the ones that, like tech and biotech, were largely lucky (and far riskier) picks that you wouldn’t have chosen out of a crowd when they were young… the “regular” small companies that can grow like that is what he’s looking for:
“They were stocks with sustained 20-year run ups that, with dividends reinvested, look like this:
“Polaris Industries (snowmobile manufacturer)… total gains of 1,951%
“Eagle Materials (cement and concrete)… 2,393%
“PACCAR (heavy duty trucks)… 2,609%
“Expeditors International (logistics)… 3,261%
“RLI (specialty insurance)… 2,951%
“For some reason, most investors don’t get excited about these kinds of stocks.
“But I’d say that’s because they don’t know the secret I’m about to share with you.
“And here’s the part that thrills me: these are the safest and easiest ’10x’ companies to find and buy.
“So how do you do it?
“That’s the secret I’m going to share with you today…”
Who doesn’t love a secret, right? He calls these “D-Factor” companies:
“Companies that radically outperformed everyone else in steady, reliable “meat and potatoes” businesses…
“…typically without ever taking a dime from venture capital… waiting for an approval from the FDA… or transforming the world with a device like the iPhone.
“This second group does not have an official name. Until now.
“I call these firms “D-Factor” companies.”
And these are apparently often the kinds of companies that lots of value investors like to look at…
“… a lot of the highest-returning stocks we identified fit into categories we already know inside and out, and love. Such as…
“Companies that sell addictive products like alcohol and nicotine.
“Retailers that sell basic goods whose sales don’t falter in a bad economy.
“Companies with a beloved brand and a wide “moat” to competition.
“But there’s one more critical attribute…. Every ‘10x’ stock in our study started out with an extremely low D-Factor.”Are you getting our free Daily Update
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He says that this “D-Factor” screening combines three main factors — size (looking for smaller market cap stocks), revenue growth, and capital efficiency.
And, he says, he also incorporates measures of debt, valuation and volatility… so it’s not a simple screen that we can replicate easily without a lot more information, but we know that Porter has often talked about capital efficiency — which is, in shorthand, the ability of a company to finance its own growth and still return a lot of cash to shareholders… capital efficient firms make enough money, or have low enough capital requirements, that they don’t have to sell more shares or borrow money and make frequent big capital investments (new buildings, new facilities, new equipment) to grow.
And then we get some hints…
“I recently shared a low D-factor business I love at a private conference in Las Vegas, where attendance tops out at one or two thousand people.
“In fact, if you had been Vegas this past year, you would have heard about one of the most incredible low D-Factor stocks I’ve ever come across.
“It’s the ‘10x’ version of McDonalds….
“But at our recent conference in Las Vegas… I mentioned the name of a company that’s very similar toMcDonalds. Its business is built around a rival brand of burgers and fries (one that you’ve definitely heard of).
“And… just like McDonalds… it’s found a way to generate huge amounts of cash through the franchise model.
“But there’s one big difference:
“This company has a low D-Factor… with a market cap well under $1 billion.
“And that’s after rising 150% since 2012….
“I’d honestly be surprised if this stock isn’t at least a 10-bagger in the coming years.”
This one I can’t be sure of, but the best guess I came around to after churning those clues around in the ol’ Thinkolator for a while is the biggest franchisee in the Burger King system, Carrol’s Restaurant Group (TAST).
It’s a bit odd, because they don’t really benefit from that “