by Travis Johnson, Stock Gumshoe | February 17, 2017 2:19 pm
Lots of readers have been sending questions our way about Porter Stansberry[1]’s new high-cost Stansberry Venture[2] 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[3],” 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[4], the new service, along with their other high-end newsletter, Stansberry Venture Technology[5] (which is Dave Lashmet[6]’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[7] 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[8]… 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…
“World-class insurers.
“Companies that sell addictive products like alcohol[9] 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.”
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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 “royalty” model like McDonald’s does — they pay royalties to Burger King (QSR), not the other way around (though Burger King does own 21% of TAST, and TAST owns “right of first refusal” for additional franchises in about a third of the country).
The “way to generate huge amounts of cash” that they’ve found, if this guess is right, is essentially arbitrage — they’re bigger, more efficient, and have better pricing power with suppliers and cheaper access to capital than small franchise operators, so they instantly make restaurants more profitable as soon as they buy them from those small operators.
Does that make it a compelling buy? I don’t know — I looked briefly at TAST a while back because they also spun out Fiesta Restaurant Group a while ago (Pollo Tropical and Taco Cabana are the brands there — Chris Mayer[10], with a similar focus on 10X long-term returns, teased FRGI as one of his watchlist stocks back in September[11]).
Why make this a match? Well, it is focused on a competing brand of burgers and fries… and the stock has has had returns of about 150% since 2012, depending on which dates you use (I can’t find many other sub-$1 billion hamburger companies that can say that — Nathan’s Famous is probably a closer match on some of the metrics hinted at, but it’s certainly not a hamburger chain). I wouldn’t say that it’s particularly capital efficient, and it is fairly high in debt, but it looks like they are good financial managers. The company has earnings of about 50 cents a share, and isn’t expected (by the small number of analysts who follow them) to grow earnings very quickly, so if there’s something particularly appealing about TAST to put you over the top into being enthused about investing in the stock, let me know.
And, as I said, that’s just a guess.
The other reasonable match is A&W Revenue Royalties (AW.UN in Toronto, AWRRF OTC in the US), which is dramatically more capital efficient — they really do just own the royalty chunk of the A&W restaurant chain, which is still fairly popular and widespread in Canada[12], and they have a pretty consistent record of 10%-ish revenue growth with very low cost of capital and, as effectively an income trust, pay out all their earnings as dividends (current yield is right around 4.5%, it appears)… so if you include dividends, the total return since January of 2012 is indeed around 150%.
A&W has been covered quite a few times in this space because it was a high yielder that has been pitched by a couple different newsletters over the years, the biggest risk I’d identify here, without having looked at the company’s financials at all and with no idea what their growth ambitions might be, is that the stock has historically traded largely as a dividend vehicle… and the dividend yield is about as low as it has ever been (it has averaged about a 6% yield since the financial crisis, and often had a double-digit yield before that… so if investors demand a higher yield like that from A&W in the future, the stock price will have to fall unless they’re raising the dividend dramatically — the dividend does go up, but it’s usually pretty gradual… the dividend per share today is about 25% higher than it was a decade ago).
For what it’s worth I also quickly looked at Red Robin, Habit, Shake Shack, Bojangles, Arcos Dorados and Biglari Holdings, which can all arguably be called sub-$1 billion hamburger restaurant chains, and none of them popped to the top of my list… and some that might be more compelling miss the cutoff because of larger size (Jack in the Box, Wendy’s, Sonic, etc. etc.). It’s certainly possible I’ve missed others, I freely admit that this is mostly a guess. Feel free to comment below if you have other thoughts on that. I do like the notion of being atop a franchise system, but the idea of being a rung below the top as the top franchisee instead of the franchisor I’d have to work a bit to get my head around.
And… that’s all I’ve seen so far. I hear tell that Porter also hinted at another pick or two on the webinar he hosted when this new product was introduced recently, but haven’t reviewed that call (I just went by what’s in the ad that’s currently circulating)… maybe I’ll have a chance to go back and take a look at that in the future, or you, dear readers, can feel free to chime in if you have thoughts on “10X” value opportunities, pitched by Porter or otherwise.
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$TAST is for sure his recommendation. Porter recommended it at his Alliance Conference in 2016.
Thanks for the confirmation!
look at rubi
Rubicon? They’re in ad serving and I prefer Criteo among the small players in that space. Why do you like Rubicon?
Porter, in his Friday tease, touted his 3rd selection with these clues: a P&C insurer; with about 150 million market cap. Using my screener, I come up with KFS or KINS, and, based on Today’s market action, I’d guess it’s KINS which soared $1.20 from 13.15
I think KFS is more of a merchant bank with interests in different companies and an acquirer of businesses.
I agree with your guess of KINS. Seems to fit the various hints of mkt gap, only selling in one state but about to expand, located in a very wealthy area (not far from Scarsdale or western Ct). However, I thought Porter announced he would only release the pick on Monday, so today’s activity might just be those of us who did research ahead of time. Of course we could all be wrong and wind up selling on Tuesday. If not, look for another nice jump next week.
You appear to be right based on the after-market action.
Or it is a group of people who did the same screens that you did and bought KINS early, because I though Porter said that the P&C insure name would not be release until after the markets closed today.
He actually released it after market close yesterday.
And now KINS is 15.15 after market. I bought KINS at 12 after an article on Street Insider so I hope it is this stock.
I also thought of FRGI because of Chris Mayer’s influence, but like you mentioned, they are not a burger chain. So I thought it was Sonic, but I missed the part about being well less than 1B market cap. So I guess it must be TAST after all; I don’t think many people have really heard of A&W burgers. Nice catch.
However, this made me look into Sonic more closely. If it is using the same franchise model successfully, isn’t it a lot more attractively priced than it’s competitors (P/E = 20 vs 24 and 44 of McDonald’s and Burger King respectively)? And it should have more room to grow particularly in the US. I haven’t been to Sonic since I lived in Dallas years ago; maybe it’s time to drive in.
He teased a P&C insurance company with a market cap of $150M in the same pitch to be released over the weekend due to small float. He said the company had a combined ratio of 65-70%. Any ideas on that one? I did a search on the micro-cap P&C insurers in that ballpark and I narrowed it down to KINS and BCRH. I’m favoring KINS due to surges in volume yesterday and today.
Travis,
I just read this from Doc Eifrig, who was on Porter’s recent 10x podcast:
“He’s already recommended two such stocks to subscribers. Of course, I can’t share any details here, but I can give you an idea of what to expect. As Porter said on our recent webinar:
One of these initial opportunities is the low “D-Factor” version of McDonald’s that I mentioned earlier. It’s one of the most obvious 10-baggers I’ve ever come across.
The other is a company that runs a type of online “market” that most folks will never see – at least not directly. It matches buyers and sellers in an absolutely massive industry. And it’s grown its revenues nearly 600% over the past five years.”
Any guesses as to the identity of the second company?
When I read those words my mind immediately jumped to Copart for some reason, though that’s definitely not it (revenue hasn’t grown really that fast, and it’s probably too big for this service). Will poke around a little.
There is, by the way, no sense to driving the shares of companies like KINS up, if that is indeed the stock — if there is a “pop” because Porter pitched it for this service, it’s awfully likely to settle back down in short order unless it was just so undervalued that any attention will keep the price sustainably higher (I haven’t looked at that one yet, personally). He’s not picking any of these stocks because they have imminent catalysts that should drive them up sharply in short order.
Maybe it is RUBI the other guy in the comments mentioned, fits both criteria.
I think that’s the sell of his service…that these are unnoticed very small cap companies that will continue to outperform over the next 5-10 years. I think he said he expects KINS to be a $6B company in the next 5 years. He will host a party in Baltimore for everyone that bought the stock to celebrate. This isn’t a pump and dump for him. Their FCF is impressive at 5x EV, and growing. Combined ratio below 80%. Porter loves insurance companies, and this one is no exception.
Well KINS is a company I know, being in the business for >40 years in exec positions. They’re simply a NY based personal line company and small biz writer, with ~60 FTE staff. A good niche UW in a very limited geo.
The only way they’ll get to be a Tier 2 ($5 B Rev) is if they go on an acquisition spree. The infrastructure and distribution system investment needed to get that big…I just don’t see without loading up on debt or issuing way more shares.
The CEO and CFO are at the tail end of their careers, and KINS has no secret sauce.
They recently floated a 2.9M share offering at 12, while a pretty significant unloading of shares by the CEO, CFO, and several directors.
The industry is in the midst of transformation, and rates are down, and losses are up (across the board-not KINS).
It isn’t big enough to be a 10X as an acquisition target. To get that big, they’ll have to come out of their NY comfort zone and write further up the risk curve, and go into being a “super regional” and right into the teeth of the current profitable Tier 2’s in the space, with bought and paid for infrastructure and distribution systems.
Personal lines isn’t really a growth segment unless you change the game, like Lemonade is trying to do. It’s becoming a commodity business.
Best’s moved their rating up a notch, but that’s based on current results not prognostications of the future.
If any irregular is inclined, for $150 you can get their full AM Best Report, and if you know how to look at the KPI’s of this industry, you have very good data to create a model of what they’d need to get to be a $5 B company.
NY is a woefully the most over regulated (some bizarre) State in the biz. KINS is surrounded by nearly 50%+ of the Tier 2 and many Tier 1’s in their space outside of NY.
Not saying it can’t happen, but for me, it’s like an investment in a junior miner with some acreage and a couple of interesting drill results. Pure spec. It finished Friday at 13.5, after the 2.9 mil float of new shares.
The only real growth in this industry is coming from those firms who are integrating new tech like AI, RPA, IoT, and FinTech like blockchain to decrease the OPEX.
The only bright spot is they sold a big bunch of shares to the venture cap arm of big name re-insurer.
As Travis notes, the pop in shares of a buck or so, will settle down. Bigger players like White Mountain through their One Beacon ownership tried to play the NY market and got their butts kicked. Same holds true for NY domiciled Tier 4’s like KINS trying to expand geo and move up the risk curve.
They are expanding to other regions, I believe one region is Texas.
I think the 600 million to 6 billion in 6 years was about the Burger and Fries Restaurant, which folks here seem to think is tast.
Shopify a guess, take a look at the run this stock has had in the last few days.
Shopify would be a guess
Hi Chaps , this is a similar one (https://orders.southbankresearch.com/RTI-0217-follow/ETRIT238/index.htm?pageNumber=2)
Has anyone looked at it yet? Maybe Travis can take a look for us?
Could that be $MBLY?
Similar article here, “Bigger than the Internet” http://www.fool.com/video-alert/stock-advisor/sa-ai/?iid=159288553&source=esamhpwdg0000028&src=esamhpwdg0000028&utm_campaign=ai-boldclaim&utm_medium=contentmarketing&vsaid=8976&utm_source=msn
A&W Royalty Canada could be it. Disappeared in Canada for a few decades, and now it’s making a huge comeback for some reason, maybe the financing?
Do people actually fall for this? And this is not his first time doing this sort of thing?
JFC:PM
I like Jollibee in this space
Haven’t looked at that one in a couple years — how are their expansion efforts outside the Philippines going?
JFC has about 3000 restaurants most of which are in Asia. Burger Kings are franchised to Jollibee in the Philippines. It has an estimated market cap over one billion dollars. They have acquired a stake in Smashburger. Giving them a market in the US. Smashburger about 350 restaurants in 35 states and 20 countries. Slow and steady could win the race. About 20% annual growth with Smash Burger. Dinkin donuts in China nothing to exciting.
That one looks interesting, but looks like the market cap is closer to $5B, although they may be miscalculating it because of the ADRs.
Still, looks fairly cheap on some of the other metrics compared to its growth prospects and the P/E ratios most other fast food restaurants are selling at these days.
Thanks for the idea, you should sell newsletters!
OK so who can figure how much product you have to earn to just pay this ridiculous price for this membership? Kinda like the jewelry and collectibles people who rent a area in a mall and sweat all month to make sure they can just meet the rent!! Stupid!!! Why not get your own website, and spend some money on advertising and if you fail you don’t lug your things back home and you can sit at home and list your items. Same thing, you can get a scottrade account, $7.00 trades and you can sit at home with good ole Travis and make money!!!!
Nominate for best post on this topic!!
Have you noticed that Agora/Porter/Casey et. al. have moved to a big dollar up front “lifetime” subscription model across all their “flagship” newsletters? Saw one yesterday for $14K up front for PM’s.
Anyone subscribing to any of these is nature’s way of telling you, you have too much free time and an excess of un-invested cash.
As 4lllls notes, pay Travis a pittance, and get your Ameritrade or Scott trade fired up and invest in something you know and have researched and studied well, and let Travis find the pea under the shells…when there is a pea to find!!
As someone who joined Stansberry’s Alliance many years ago, I can tell you that this isn’t something new. The sales pitch that I fell for at the time was that for a several thousand dollar payment up front ($5K if I recall correctly) and a yearly “maintenance fee”, I would have access to all their investment letters at the time and any new letters they might publish in the future.
The above worked till fairly recently, when Phase 1 was first renamed to Venture and then “peeled off” a few months later. When I asked them why, all of a sudden, I no longer had access to Venture, I was told that it was an oversight on their part: I should never have had access to it in the first place, as it never was part of the “Alliance bundle”. A subscription would cost $5K!
Now I see that Venture has been renamed Venture Technology, and another high-priced twin, Venture Value has been birthed. The two are being marketed at a discounted “co-joined siamese twin special” :).
The FRAM oil filter (https://en.wikipedia.org/wiki/FRAM_(filter)) sales pitch: “You can pay me (a small amount) now, or pay me (a much larger amount) later”
has been turned on its head and doubled up: “You can pay me a huge amount now AND a small amount every year in perpetuity”. Why stop at only doubling up? Triple up via “peeling off”, quadruple up via “birthing a twin”…
As a relatively recent ‘Alliance’ member, I wouldn’t be honest if I did not express my disappointment with this new ‘venture project’. I paid 15K and now it is quite obvious that they are going to be putting their effort into the Venture project and if I wish to participate, I have to fork up another $5,500. I certainly would not be honest if I said I’m O.K. with that. Obviously, their other papers are going to suffer.
The more papers I read and the more subscriptions I purchase, the more I realize that’s where the bucks are. . . .subscriptions. WWW
Wwibby- As an long term Alliance member I can tell that your thinking is not on point. The person that does the Venture newsletter is completely separate from the numerous other analysts that write their many other services.
There is more than enough in the full Alliance membership to keep you engaged. In fact there are normally more recommendations in a year than you can invest in.
HK listed Ajisen Ramen is moving quickly through China, http://eqibeat.com/top-20-restaurant-chains-dividend-yield-no-2/
Ken
As a member of many of Agoras publications I can say that in the last year all of their newsletters have really been pushing lifetime memberships. I think they are seeing a major currency and stock crash on the horizon. In that type of environment stock brokers as well as newsletters find most of their clients not interested in buying stocks. Stansberry earlier was forming a consumer brand company totally not related to his current business. His comment was at the time that it was a hedge against the financial news business.
is the consumer brand company related to the razor they’ve been pushing since last year?
If one did not want to ante up for Porter’s newsletter, do any of the Irregulars have a small cap newsletter that they have used in the past that they would recommend and is reasonably priced?
Thanks!
Hey! I’m looking for a partner who’s interested in splitting the cost for value venture. Please respond to my comment or email me here renanlimag420@gmail.com so we can talk about it.
There are two Burger / Fries outfits that come to mind – Burgerville, from Portland Oregon and very popular where they have restaurants, and In and Out which are real popular in CA. What do you think of these? Another pick Porter discussed was a property and casualty insurer with a mc around 135 million and with prospects compared to W.H or C Berkeley co. 20 years ago. The other is a”basic service” company selling something needed in some 150 billion industry, and doing it especially well because of the way they are using the internet. Cryptic for sure. would appreciate anything you can add here.
I am new to stansberry and so far I’m really impressed with the write ups. I like the full service brokerage program and I have just susbcribe on their “Venture Value” but the fees were kind of hefty for me and I was looking for possible ways to lessen the cost. If someone’s interested, I would like to share my “Stansberry Venture Value” membership and split the cost. Send me an email allanstokesg420@gmail.com so we can talk more about it.