The Story Behind 500% Gains in Sugar
Editor's note: You don't have to take a lot of risk to make huge returns in stocks.
As we showed you yesterday, you can safely make hundreds of percent buying "boring," stodgy companies like RV maker Winnebago.
In today's Masters Series – the final installment of a two-part interview with Stansberry Research senior analyst Bryan Beach – you'll learn why famous investors like Warren Buffett can't take advantage of this strategy... and what kind of upside you can expect...
The Story Behind 500% Gains in Sugar
An interview with Stansberry Research senior analyst Bryan Beach
Sam Latter: Will the "10x Project" exclusively identify household names like the Winnebago example you gave yesterday?
Bryan Beach: No, I don't think so. Most truly great brands are already huge companies. This was an extreme example. But we're looking for companies with the staying power of Winnebago and stellar reputations in their industries. You don't need a world-famous brand to have intangibles like that.
So we won't be recommending Wal-Mart or Coca-Cola. Coke, by the way, has been a great investment over the years. It's a favorite of legendary investor Warren Buffett.
But for every global brand like Coke, there's usually a small-cap version out there... a little company in the same industry that's set to take off thanks to the same tailwinds that help the big guys. In this case, that's America's addiction to sugary drinks.
With Coke, it's National Beverage, which we actually recommended a few years ago in Stansberry's Investment Advisory. National Beverage is a little soft-drink company that used to sell only off-brand and regional stuff. Like Shasta, for example, which you may have heard of. Shares are up around 400% since 2010, and if you reinvested your dividends, it's closer to 500%.
Sam: Up 500% selling Shasta?
Bryan: Well, National Beverage was also way out in front of the sparkling-water craze. It also sells La Croix. And demand has been off the charts. When we recommended shares, we closed the position for a 71% gain in about 16 months. And in hindsight, we shouldn't have sold. Shares have continued higher. But the point is, it was an innovative, small-cap company in the "boring" business of selling soft drinks.
Coke is great, and it belongs in everyone's long-term portfolio, as long as you buy at a good price. But if you really wanted to make a lot of money buying a company in the same industry, a company like National Beverage offered far more upside at the time.
Sam: This might be a silly question, but if this investment strategy is so great, why aren't the world's best investors – guys like Warren Buffett and Carl Icahn – buying these companies?
Bryan: Because they can't. Buffett has said many times that us little guys have a huge advantage over guys like him.
You see, he manages hundreds of billions of dollars. Berkshire Hathaway has something like $250 billion in cash. When you manage that kind of money, it doesn't make sense to look at small-cap companies, no matter how high-growth they are. Even if a small business doubles overnight, it isn't going to move the needle for a company like Berkshire.
That's why Buffett says he's "looking for elephants." Small businesses do nothing for him, no matter how great they are.
Sam: I read somewhere that Buffett said if he had less than $5 million, he could double it every year or two.
Bryan: Yeah, I read that, too. And this is exactly what Buffett is talking about. It's much easier to double your money in high-quality, small businesses, which is what we'll be focusing on with this new project. But for Buffett, these stocks are no longer fair game.
Sam: Does this strategy work in both bull and bear markets?
Bryan: As long as you have a reasonably long investment horizon, it's never a bad time to buy a great company at a good price.
Think back to the Winnebago example. Every few years, shares dip below 10 times free cash flow. If you buy shares that cheaply and you're patient, you'll eventually make two or three times your money. It has happened again and again over the course of Winnebago's history.
You don't have to time it perfectly and buy at the exact bottom. Remember, you could have made four times your money after shares had already doubled. Investors would still be sitting on huge gains.
Sam: This sounds like a great way to make a lot of money in the market. How much money do readers need to make these trades?
Bryan: Well, the "10x Project" is different from Stansberry's Credit Opportunities or Stansberry Alpha, where you need to set aside a large chunk of capital to devote to this strategy. This is an appropriate strategy for whatever portion of your portfolio you devote to small-cap stocks.
Sam: Thanks for your time today, Bryan. Good luck with the "10x Project."
Bryan: My pleasure, Sam.
Editor's note: On Wednesday at 8 p.m. Eastern time, Porter and Bryan are hosting a live event where they will share all of the details on the "10x Project." You'll learn how to make potentially life-changing gains... without buying risky options or betting it all on the next technology fad. Reserve your spot here.