Editor's note: Our colleague Mike Barrett says a rare investment class could double your money this year... And he should know. Throughout his career at Stansberry Research, he has focused on stocks with hidden potential. In this updated piece – which we last shared in DailyWealth in August 2020 – Mike discusses two characteristics that can lead to major growth over time.
Also, the stock market and our offices will be closed on Monday in observance of Labor Day. We'll pick back up with our normal publishing schedule on Tuesday after the Weekend Edition. Enjoy the holiday!
My good friends John and Kendra settled on their dream home more than 25 years ago...
It was "more house" than they should have bought at the time. But they couldn't resist.
While the first few years were tough on their budget, things couldn't have worked out any better for John and Kendra in the long run. They paid less than $400,000 for the property... and now, it's worth at least $2.5 million.
You see, this property is special because of its location. It's on a quiet, unusually wide, and deep canal near the Intracoastal Waterway and Atlantic Ocean. Ultra-rich yacht owners love this area... especially during the winter months, when they can escape the cold Northeast weather.
John and Kendra didn't fully appreciate this a quarter-century ago when they moved in, but they certainly do now... They own one of South Florida's "crown jewels."
Now, the thing is, crown jewels like these aren't just found in real estate. They're also plentiful in the stock market – if you know what to look for.
By buying these gems and holding them for the long term, you have the opportunity to build massive wealth in the same way that John and Kendra have with their house.
So in today's essay, I want to help you learn how to uncover these crown jewels. Let's start at the top – by breaking down their two key qualities...
Crown-jewel stocks possess two key traits – enduring value and optionality.
Enduring value typically comes from at least one of the following three factors...
- Unique physical assets
- Special rights
- Special capabilities
Waterfront property in a prime location, like John and Kendra's home, is special because it's very scarce. It has enduring value because you can only buy so much land in South Florida with quick access to the Intracoastal Waterway and Atlantic Ocean.
Many public companies have also amassed impressive real estate holdings, although investors don't necessarily think of them as tools for generating money in the space.
Consider Copart (CPRT), the country's leading provider of vehicle-reselling services...
Copart has tens of thousands of vehicles for sale at any given time on its website. And maintaining a huge inventory of damaged vehicles requires a lot of land in strategic locations... The company currently owns more than 16,000 acres.
But what makes Copart special is how it turned its land holdings into a unique – and often underappreciated – competitive advantage. It's a unique physical asset...
You see, since large land tracts in or near major cities are scarce, their value has risen over time. And that translates into higher rental prices for the land.
Because Copart's competitors generally rent rather than own, they must pay increasingly higher rates to use the land. But because it acquired its land years ago at lower prices, Copart avoids this problem and earns industry-leading operating margins.
Sometimes, it's about more than just the assets themselves...
Crown-jewel companies also have special rights that are nearly impossible for competitors to replicate. Firms can leverage this tremendous advantage into something every business prizes – the ability to regularly raise prices.
For instance, the special right to sell products under a well-known, highly regarded brand is one of the greatest sources of enduring value ever created...
Iconic brands like Coca-Cola, Quaker Oats, and Campbell Soup have been around for more than a century. They provide a durable source of cash flow for their owners. Dominant brands typically get special privileges, too – like premium shelf space at top retailers.
Certain crown-jewel companies also have special capabilities...
One particularly valuable skill is the ability to acquire other companies successfully. By this, I mean finding the right companies at good prices... and then integrating them into the existing business in a way that adds value.
Many acquirers excel at one or the other. Few companies are exceptional at both.
These traits can all create enduring value. But in addition to enduring value, crown jewels often feature another critical attribute – optionality...
Think of this as something special that you don't necessarily count on, or even know about today... But in the future, it could become a very big deal.
When my friends John and Kendra bought their South Florida home more than 25 years ago, they were still a long way from retirement. Now that they're closer to retirement age, they're looking at other places to live.
The good news is... they'll never have to sell their amazing waterfront property (and take a huge capital-gains tax hit) to fund the move.
That's because the home-rental market has developed so much over the past decade due to operators like Airbnb, Vrbo, and other online rental companies. John and Kendra can easily rent their waterfront home for $15,000 per month in-season (December to April), while they use part of that income to live comfortably somewhere else until the offseason.
That's the beauty of crown jewels...
They can change with the times in ways that are impossible to predict... and make smart, early investors a fortune in the process. This might be the best example...
One investor I know purchased $5,000 of Apple (AAPL) stock in the late 1990s, long before the iPhone was even on the drawing board. Today, that position is worth about $1.6 million... and it provides the investor with $8,000 in annual dividend income.
Think about that... This investment is now generating more income each year than it originally cost the investor, largely thanks to a product that didn't even exist at the time!
Every long-term investor faces the same fundamental question... How do I boost the wealth-creating potential of my capital?
You can start by gradually building substantial positions in the market's crown jewels.
Editor's note: Mike built his investment strategy to identify potential 10-baggers. It highlights companies that often have been quietly operating for a decade or more... with one hidden quality on their side. Check out Mike's rundown on how to use the 10x Investor approach yourself, and you'll learn why last year's crash has paved the way for these opportunities to soar... Plus, you'll get a free recommendation that he believes could make you a lot of money. Click here to find out more.
"I'm constantly astounded by how technology turns innovative ideas into valuable, world-changing intellectual property," Mike writes. It's a great way to unlock the potential of a winning concept. And it can lead to outsized gains for investors... Read more here.
You need a game plan as an investor. That's how you can withstand sudden market declines – and make systematic, compounding gains over the long haul. One simple three-step formula can help... Learn more here.