Cardboard and Soup
Three Revolutionary New Ideas
One Great American Stock
Earlier this week, I wrote the November issue of
Cabot Stock of the Month
, highlighting a company whose main business is making cardboard
and containerboard. It's a very logical investment thanks to its
low valuation and its high prospects for earnings expansion-in
part thanks to price hikes. But at the end of the day it's still
a cardboard company, so while I'm enthusiastic about the
investment, it's hard to get excited about the company as a
Similarly, this week we published a recommendation for a major
soup company in
Cabot Top Ten Trader
. As an investment it looks great, not least because it yields
3.3%, which beats cash in the bank hands-down. But the soup
business, like the cardboard business, leaves me yawning.
What gets me excited are businesses that have a revolutionary
factor with the potential to make the world a better
place-because that's where we find some of our greatest
Amazon.com, for example, revolutionized the shopping business.
We did very with that as an investment, notching gains of over
Green Mountain Coffee Roasters, similarly, revolutionized the
coffee business with its Keurig brewers and K-cups. We did very
well with that as well.
Crocs revolutionized the footwear industry with its plastic
(but oh so comfortable) shoes. Here, too, Cabot made nice
And the revolutionary ideas never stop coming!
All you've got to do is keep your eyes open, and remember that
even though these companies are often ridiculed at first, that's
actually a sign of revolutionary potential. The "experts" said
Amazon would be killed by Barnes and Noble and Borders. And the
experts said adults would never buy plastic shoes. But they
So today I want to run three more revolutionary investment
ideas past you. Some you can invest in now; some are not quite
ready. But all three excite me because, brought to fruition, they
will make the world a better place.
Interestingly, all three are related to automobiles, which
tend to excite me a lot more than cardboard and soup!
#1: Dealer-less Auto Sales
The first idea is the concept of bypassing your local auto
dealer when you purchase a new car. Amazon.com found a way to
bypass your local, inventory-heavy merchant-first for books and
then for everything else-so why can't you bypass the franchised
dealer (and avoid his markup) when you buy a new car?
A lot of people, obviously, will laugh at this idea. They'll
claim they need to test-drive cars, or they'll claim they need
those franchisees for warrantee service down the road. (Remember,
skepticism is a good sign.)
But the dealer-less auto sale is already a reality for
. The company has no franchised dealers; it sells all its
electric cars through outlets that look more like Apple stores
than Chevrolet franchises. Every car sells for list price;
there's no haggling. Right now, it has reservations for more cars
than it can make.
Now, Tesla is not a big deal yet; it's sold fewer than 4,000
cars. Yet auto dealers are beginning to notice! And in the grand
tradition of American business, dealers in New York and
Massachusetts are suing, claiming Tesla is violating state laws.
Interestingly, Tesla founder Elon Musk did not get into the car
business with the idea of revolutionizing the automobile sales
model, but it looks like a great side effect to me!
#2: Internet-Powered Taxi Industry
The second idea involves replacing the ridiculously outmoded
taxicab industry with a new Internet-powered paradigm. Why do we
need a central dispatcher on a telephone when the Internet means
customers can communicate directly with potential drivers? And
why should we limit the number of potential drivers via an
expensive medallion system when the market is perfectly capable
of doing that itself, just as it does with restaurants and shoe
stores and nail salons?
Skeptics will claim that the current structure is safest-that
the vehicles and drivers are vetted regularly. But most of us
have had cab drivers whose behavior argues otherwise. And it's
clear that a fully informed Internet-centric business would
enable even more intelligent allocation of drivers to riders than
the current outmoded system.
Now, you can't invest in this new decentralized (peer-to-peer,
some call it) ride-sharing idea yet, but there a number of
businesses in operation already, refining the concept while
working around the current regulations. Interestingly, all are
based in San Francisco, and all make use of apps on
Uber offers service in a dozen North American cities, as well
as in Paris, France.
Zimride has been in business five years, and branched out from
its car-pooling roots to a service named Lyft, which is similar
to Uber's, but is notable for big pink mustaches on its drivers'
Sidecar is younger, but just last month announced it had
received $10 million in funding (Google Ventures was a lead
investor), and is looking to expand across the U.S.
Tickengo was started last year, and says 10,000 drivers have
already signed up!
I wish them all well as this young industry evolves.
Interestingly, there is a company named
Medallion Financial (
whose main business involves financing taxi businesses, the
biggest expense of which is typically the medallion purchase.
Medallion came public in 1996, and the stock has made no progress
over the long term, though it's had some big swings. Revenues at
the company have shrunk in each of the past three years. But
intermediate-term, its stock is clearly in an uptrend, and that
plus the impressive 6.7% dividend means it might be worth looking
at. Just note that it's lightly traded, which is a major reason
no Cabot publications have recommended it.
#3: Driverless Automobiles
The third revolutionary idea involves replacing the driver
totally, and letting the car drive itself, which is a good idea
because it would reduce accidents, it would enable more efficient
traffic flows and it would allow ex-drivers to be more
As a guy who likes driving, I don't relish the thought of
giving up the wheel, but I can see the writing on the wall. And
so can legislators in California, Florida and Nevada, which have
already made driverless cars legal.
Google is the lead dog in this race. Its self-driving cars
have already logged more than 300,000 miles, and it's stated
clearly that it doesn't want to make cars; it wants to make the
software that runs the cars. I wish them luck.
Sticking with the vehicle theme, my investment idea today is
an all-American company that began life as a maker of
snowmobiles, but has expanded to become a major force in off-road
vehicles of all sorts, and is slowly moving into on-road vehicles
Polaris Industries (
, based in Minnesota, and here's what editor Mike Cintolo wrote
about it in a recent edition of
Cabot Top Ten Trader.
"Polaris began life in 1954 as a developer and manufacturer of
snowmobiles, but that segment of the business accounts for just
11% of revenues today. The bulk of the business (69%) comes from
four-wheel and six-wheel ATVs marketed to hunters, farmers,
ranchers and outdoorsmen of all stripes, as well as the military,
and Polaris is dominant in this industry. But the company is not
sitting still; it has a great track record of adapting to the
market. Polaris got out of the personal watercraft business in
2004. It created an on-road division in 2009; now 5% of revenues
come from its American-made motorcycle brands Indian and Victory.
And in 2011 it began moving into the electric vehicle market,
buying Global Electric Vehicles (GEM), a maker of neighborhood
electric vehicles, from Chrysler, and investing in Brammo, a
manufacturer of electric motorcycles. Revenue trends have been
steadily positive for years, with the exception of a big dip in
2009-the economy, you know. And last week's earnings report
brought more good news, beating analysts' estimates for both
revenues and earnings. Particularly impressive to us were the fat
10.7% after-tax profit margin (high single-digits are more
typical) and the fact that revenues from motorcycles (mainly
Indian and Victory) soared 78%."
Here's a photo of the Polaris Sportsman 400, which they call
"the best value ATV on the market." You can get a new one for
less than $6,000.
As for the stock's technical action, the long-term trend is
up, and that earnings report brought a high-volume buying spike
that is bullish for the intermediate-term. Even better, the stock
has pulled back normally since that spike (like the broad
market), and I think that presents a decent buying opportunity.
Finally, the annual yield is 1.8%, which is nothing to sneeze at
If you like the idea-maybe you're already a Polaris
customer-you could simply buy the stock right here and hope for
the best. My recommendation, however, is that you take this
opportunity to take a trial subscription to Cabot Top Ten Trader
so that you can be updated on Mike's latest thoughts about
Polaris in every weekly issue, and be informed about other great
short-term investment opportunities as well.
Yours in pursuit of wisdom and wealth,
Cabot Stock of the Month