Regular Daily readers know we pounce on any chance we get to share timeless investing wisdom from Agora Inc.’s all-time best stock picker, Chris Mayer.
Every $100,000 invested in Chris’ recommendations turned into $480,000 over 10 years. When Chris shares his secrets, we listen…
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From Chris Mayer, chief investment strategist, Bonner & Partners: There are two factors that almost every “100-bagger” stock has in common.
A couple of years ago, I published a study of 100-baggers—stocks that returned 100-to-1—over a 50-year span. And the importance of these “twin engines” turned up again and again.
The best way to show you how the twin engines work is with an example…
Let’s say we have a stock that earns $1 per share and trades for 20 times company earnings. That would make the stock $20.
Now, five years later, earnings have tripled to $3 per share.
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If the stock still trades for 20 times earnings, then you’ll have tripled your money, as the stock would trade for $60 per share.
That’s a nice result. And shows you the power of the first engine: earnings growth.
But the second engine I look for is a low multiple on those earnings.
Let’s say you find a similar stock trading for just 10 times earnings. The stock is $10 and earns $1 per share.
Now, five years later, earnings have tripled to $3 per share.
But the cat is out of the bag. The market has come to appreciate the power of its business model, and the stock trades for 20 times earnings.
Now the stock is $60, as in the prior example… and you’re up sixfold instead of threefold.
Understanding the twin-engine concept is one thing, but finding stocks that have both components is another.
In 1982, Aflac was a small insurance company with $585 million in sales. Twenty years later, sales were up to $10.2 billion. That’s a 17-fold increase. Earnings per share did better—they went from 4 cents to $1.30. But the stock was up 100-fold.
How so?
Well, the market valued earnings at just 10 times in 1982. But 10 years later, it traded for almost 30 times earnings. The twin engines again.
The table below lists five stocks with low price-to-earnings (P/E) ratios compared to their estimated long-term growth rate in earnings per share (LTG EPS) for the next five years:
Each of the five companies I listed has the “twin engines” I look for in an investment. I recommend checking them out…
Reeves’ Note: Last week, Chris launched his newest investment advisory, Chris Mayer’s Focus. It’s designed to help you build a concentrated portfolio of small-cap stocks with “twin engines”—along with a few other traits—that could boost returns 10 times or more.
We’re talking about investing in the “next Apple,” the “next Starbucks,” or the “next Walmart”—long before Wall Street is paying any attention to these companies.
This new project is very close to the way Chris personally invests… and he’ll take you deep behind the scenes of every recommendation he makes. To learn how you can sign on for an incredible discount, click here.
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