Tom Yeung here with this week’s Sunday Digest.
In 1934, news magnate Charles E. Marsh was already a wealthy man. The 47-year-old media mogul had spent his career buying up small newspapers, and his keen eye for mergers and acquisitions (particularly in Texas) had made him a millionaire.
But when it came to Texas’s booming oil market, he knew rather little.
So, rather than chance it on his own, Marsh put his money behind Sid Richardson, a previously successful oil wildcatter who had fallen on hard times during the 1920s oil bust. Marsh wrote a $30,000 check, and the oilman set off in search of riches.
The bet paid off.
Within a year, Sid Richardson struck oil in West Texas. His find would later become known as the Keystone Field – a section of the massive Permian Basin that remains in production today. Marsh split the profits with Richardson, another 80 wells were drilled, and both men walked away with wealth beyond their dreams.
My point here is that history has shown that investing alongside experts works. Rather than do all the research themselves, some people simply ride on other investors’ coattails to riches. Think of those who bought shares of Warren Buffett’s Berkshire Hathaway Inc. (BRK.A) in 1980 or put cash into Jim Simon’s Renaissance Technologies the decade after!
In fact, studies now consistently find that buying shares of companies owned by institutional investors (also known as “smart money”) generates superior returns, especially over the 3 to 6-month period.
This week, InvestorPlace Senior Analyst Louis Navellier will be unveiling a quantitative tool that helps investors identify stocks with just the right amount of institutional buying behind them – not too much, and not too little. According to back-testing, the system – known as MoneyFlow – has outperformed the market by a 6-to-1 ratio since 1990.
You’ll want to be sure to get ahead while you still can. So, click here to reserve your spot for Louis’s presentation now.
In the meantime, I’ve been given permission to share three of these top MoneyFlow picks with you.
The Flavor King
If you’ve ever visited a Burger King, you might notice how the fast-food chain tempts visitors with pictures of their “flame grilled” Whoppers roasting on an open fire. And if you order one for yourself, you will also notice how the patty smells and tastes like it’s been cooked on a charcoal grill.
But look behind the restaurant counter, and you’ll see that no Burger King has an open-fire grill. Patties are simply broiled in a conveyer-belt heater and then assembled into sandwiches. So, how does the restaurant chain manage to make their burgers taste that way?
The answer comes from companies like International Flavors & Fragrances Inc. (IFF). These behind-the-scenes firms are masters at creating the right tastes, smells, and textures for everything from high-end perfumes to sickly sweet cough syrup. IFF itself is an expert in the food design business, which creates products that can, among many things, “mimic the taste and aroma of authentic meat cooking techniques in culinary and clean label applications.”
That makes IFF a particularly wide-moat firm. Once a business creates a particular taste with the help of IFF researchers, it’s almost impossible to move to a new supplier without altering the product. Over the past three decades, IFF has averaged a 20% return on equity (ROE) from its incredible pricing power.
A sudden surge of institutional buying now suggests that it’s the right time to jump back into this sold-off blue-chip firm. Shares have fallen 30% since their 2021 peak on unexpected goodwill write-offs, and analysts are predicting a return to high profits in 2025.
The company additionally scores in the center of MoneyFlow’s “sweet spot,” and was recently upgraded to an “A” grade in Louis’s Portfolio Grader tool for its high margins and accelerating earnings growth.
Building a House of Bricks
Realty Income Corp. (O) is one of the best-run real estate investment trusts (REITs) in America. Management has a highly disciplined acquisition strategy, and the firm has long focused on “triple net” leases, which means tenants are expected to absorb costs like taxes, insurance, maintenance, and utilities in addition to rent.
That makes Realty Income a highly stable, cash-producing enterprise. In fact, the firm saw cash flows go up during the Covid-19 pandemic.
The company also famously pays dividends on a monthly basis, and has done so for the past 55 years.
The downside to this stability is slower growth. Management typically raises rents by just 1% annually to keep its best customers in place, and has pursued expansion through acquisitions instead. So, when commercial real estate prices are high (as they were in 2022-2023), growth at Realty Income can grind to a halt.
Fortunately, smart-money investors now believe that the time is right to jump back in. Since the start of 2024, Wall Street analysts have upgraded their topline growth estimates from just 2.5% to 6.6%, helping trigger a sudden surge of institutional buying. Realty Income now scores a “60” in its MoneyFlow score, putting it in the “sweet spot” of buying.
Further gains are also likely on the way. Cap rates (a measure of real estate profitability) are far better today than they were in 2022 thanks to easing rates and lower real estate values; The Green Street Commercial Property Price Index has decreased –3% in the past 12 months. At the same time, Realty Income (thanks to its sound financial management) has plenty of cash to spend. In its most recent filing, the company indicated it has $3.8 billion of liquidity, which it can supplement with additional capital raises.
The Short-Term Trade
Finally, MoneyFlow has identified a short-term trade hiding under everyone’s noses:
Fox Corp (FOXA).
The polarizing news network’s owner has thrived this year on coverage of the 2024 election. Revenue growth estimates have risen from –4.8% at the start of the year to +7.8% today, driven by a surge in advertising revenues and rising subscriber counts. Adjusted earnings per share are expected to surge 17% this year. No matter who wins the race for the White House this November, Fox News and FOXA have made it its business to profit.
The news network is also doing a surprisingly good job in attracting new viewers in a shrinking TV market. According to Refinitiv, subscriber count grew 9% last year, and is expected to increase another 5.2% this year. Fox News itself (which excludes sports and entertainment) reported a 43% rise in the 25-54 viewership demographic in Q3 2024. Visit any gym, airport, or sports bar in the country, and it’s hard to get away from Fox News’ reach.
That said, three downsides exist…
1. Fox Corp generates 70% of its profits from the shrinking cable TV market. According to the Leichtman Research Group, pay-TV subscribers will have dropped a third from 2010 by the end of this year, and most analysts expect this secular decline to continue as younger cord-cutting consumers replace older cable subscribers.
2. Fox doesn’t own its sports and entertainment content, sapping its ability to earn super-normal profits. Its NFL screening rights, for instance, must be renewed in 2033.
3. Many investors could find Fox off-putting for its often-controversial content. It’s even reasonable to view Fox as a “sin” stock, like those that deal in tobacco or firearms, given its legal issues. Smartmatic’s $2.7 billion defamation suit against the TV company goes to trial next year.
However, it’s hard to beat Fox Corp. as a short-term play. The company has made a business out of playing to its base, and the frenzied coverage of the 2024 election will likely produce an enormous Q4 earnings beat that smart money is already anticipating.
The Day After Summit
When the election happens in just over a week, most traders will be focused on the event itself. There will be arguments on whether “Trump Trades” or “Harris Trades” will do better, and investors will be adjusting their bets to fit the election outcome. Volatility will almost certainly spike in the case of a contested election.
But then what?
In his “Day-After Summit” on Tuesday, October 29, at 7 p.m. Eastern Time, Louis will be showing folks how to use MoneyFlow to navigate the volatility he sees coming and turn it into profits by using the system. You’ll notice that the three companies I’ve talked about today are all set to do well, no matter who wins the election.
During that event, Louis will have a lot more to say about the period of extreme market chaos that’s coming. Millions of Americans risk getting into trouble as markets whipsaw… and he doesn’t want you to be one of them.
And in addition to showing you the best way to navigate the chaos, Louis will be sharing a post-election trade – for free – with everyone who attends. It’s designed to pay off no matter who wins the election.
Here’s that link again to secure your spot.
I’ll see you back here next Sunday.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace