From juvenile delinquent to #1 strategist in America (119 trades, 0 realized losses)
I was born into poverty. When I was 16, my mother kicked me out of the house. After that, I dropped out of high school and spent most of my days drinking, partying, and getting arrested. Today, I’m the only undefeated strategist in the business. I’ve closed out 32 winning trade recommendations in a row. My average gain is 70%. And I haven’t taken a loss on a single trade.
In case you’ve been living under a rock the past week, here’s a link to the Heatseekers video I released on Wednesday. It will tell you in fascinating detail how I use baseball metrics to generate my, so far, undefeated track record (and how you can do the same thing).
“Heatseekers” are All-Star stocks at bargain prices, and I sift through a very exacting set of criteria to find them.
This weekend, I want to give you a glimpse into how that process works…the kinds of recommendations I make for Heatseekers…how I pick them out…and what makes them special.
Perhaps most impressive, in order to illustrate the process, I am giving you a “bonus” pick, absolutely for free, right here.
Now, this isn’t an official “Heatseekers” pick – you won’t find it in our official portfolio – but it fits my “WAR” and “Cost of WAR” criteria – and it serves as a great example of the kind of “hidden gems” that we look for.
This “Hidden Gem” Bonus Pick Shows You Exactly How I Pick “Heatseekers”
Let me walk you through the process I use to find Heatseeker stocks – using Star Group LP (SGU) as an example.
Find A “Boring” Business With A Great Strategy And A Forgettable Story
SGU is definitely in a really boring business. They sell heating oil and propane to customers in the United States. Most of their operation is in the Northeastern United States, but they do also serve Michigan, Tennessee the Carolinas and Georgia. In all they have 455,000 retail and commercial customers under contract and another 74,000 using on-demand delivery. Star Group also installs and services HVAC equipment. They even have plumbing and home security divisions that provide those services to 31,000 customers. This is not rocket science or cancer curing stuff, but it is a demand that is not going to go away anytime soon.
What is pretty sexy is the way they have built the business into the largest heating oil company in the US. They have basically rolled up what is primarily a Mom and Pop business into a larger more efficient company. They actively scout for small dealers that are looking for an exit strategy and negotiate a price that allows Star Group to bring them into the fold profitably. The heating oil business is heavily regulated and dependent on commodity prices to a large degree. Those costs and risk are better managed at a bigger company, so many owner-operators are happy to sell out and move on.
The big knock on Star is that heating oil is slowly but surely declining as homes convert to natural gas. Management estimates that they lose about 1% of their customers a year to natural gas conversions across their market area. However, switching your home from oil to gas is not cheap, and most homeowners choose to simply stay with oil.
In addition to the cost and hassle of conversion a lot of folks just like oil heaters better. Heating oil burns hotter and warms your house a lot faster the natural gas systems. In regions with cold winters, heating oil can be a much better choice to keep the wolves of winter weather at bay. The market may be smaller than it was decades ago, but there are still plenty of opportunities to make money.
Star Group estimates that it has between 5 and 6% of the home heating oil market in the United States so there will be plenty of opportunities to execute smart financially attractive acquisitions. They are also buying propane and motor vehicle fuel delivery companies to diversify outside of the core heating oil market. In 2017 they acquired four home heating oil dealers, two propane dealers, and a plumbing service provider. As long as the can find businesses that fit their mold they can grow at a pace that almost guarantees us big long-term profits.
Crunch the Numbers to Find a Fantastic “WAR” Rating
The story is kind of boring, but it is the numbers that can make us money. Star Gas has a Wins Above Replacement of 9.3, so this is a fantastic business in fantastic financial condition. (I explain all about what goes into WAR in my video here.) Because almost nobody on Wall Street or the mainstream financial media cares very much about the heating oil business, we can also buy into the business on very attractive terms. The cost per WAR for Star gas is just .83, so it is a bargain price that should allow for significant long-term gains. This like signing All-star Jose Altuve to play second base for the cost of a triple-A prospect.
On top of the long-term gain potential, we get paid pretty well along the way. Star Gas currently yields 4.8%. The company is required by the original partnership agreement to distribute all available cash at the end of each quarter after subtracting the cash reserve the board feels is necessary to run the business. This means that as the company grows through smart dealmaking, the dividend will go up year in and year out.
There is one last thing you should know about Star Gas. At the end of 2017, they switched from messy partnership taxation for dividends with all those messy, constantly late K1s to being taxed as a corporation. Now the dividend is treated like any other payout. A lot of larger investors had avoided the shares because of the messy paperwork, and the change may attract some of the buyers to take advantage of a great business at a bargain price.
So SGU is not a sexy story, but the numbers are pretty fancy. A great business at a great price with a high and rising dividend yield is a proven way of piling up wealth. Remember we are not picking stocks to trade but buying businesses to own for a long time. That’s how you get rich, not just by snapping up the hot story of the day.
And that’s how I pick “Heatseekers” – a new one every single Monday.
If you’re part of my research service already, you should be watching your inbox like a hawk on Monday morning for your first official trade recommendation.
If you’re not in the club already, what are you waiting for?
To the Max,