It came down to an esoteric measure that maybe one investor in
100 gives a hoot about.
It didn't have to be like this.
I was interested in insurance, notably
Aon (NYSE:AON )
Marsh McClendon & Co. (NYSE:
, which provide insurance services to large companies. They help
large businesses solve major insurance headaches, getting the right
policies in effect and handling a lot of back-office details. It's
surprisingly big business: Aon and Marsh alone have combined
revenue of nearly $25 billion a year.
This got my attention. I decided to take a closer look…
Aon is a little smaller in terms ofmarket cap, $16.3 billion to
Marsh's $18.4 billion. They have similar valuations, too: Aon
trades at 17.5 timesnet earnings , Marsh at 18.8. Revenue is
comparable: $11.2 billion at Aon to Marsh's $11.5 billion.
Marsh seems a little nimbler: It has 9,000 fewer employees than
Aon, and, as a consequence, its net margins are higher. Both
companies are heavily owned by institutions, with the smart money
holding more than 80% of both. Year-to date performance is also
nearly identical, as is Aon's and Marsh's five-year return, during
which neither beat the S&P.
Thebalance sheet was the kicker. At the top, Marsh looks great
-- it has tons of cash on hand ($1.4 billion to Aon's $286
million). Marsh also carries lessgoodwill on the books and
shoulders only about a third of the total debt that Aon is saddled
Down at the bottom of the balance sheet, though, was the tipping
point. Since 2008, Marsh has built the net value of its business,
as measured by the company's shareholder equity, ornet worth , by a
meager 2.8%. Aon, meantime, saw its net worth balloon to $8.0
billion from $5.3 billion, a 52% gain.
So I bought a little Aon: I know it wants to outperform Marsh. I
can guess it will ultimately see that controlling expenses is the
way to do that, but perhaps in the short term, the thinking is that
its 9,000 additional employees will give it a competitive
advantage. Given its strong No. 2 position, I can accept that line
of thinking, and I'm willing to accept a compound annual growth
rate in shareholder equity of 15% a year in the meantime, which the
company ought to be able to manage if only by paying down debt.
Now, hear me: If you want great returns, don't ever, ever buy a
stock like this.
Not even once.
You should never have to look this hard for a reason to buy a
stock. If you do, you're always going to be disappointed with the
To be honest, I don't expect much out of Aon.
But what about a company that's growing 100% a year?
What about a company with such a great business that it's been
able to grow even in the GreatRecession ?
What about the next
, the next
, the next
Listen, those companies are out there.
Right now, as you read this, some very smart people are
completely uninterested in theeconomy . They've trained their focus
instead of bringing about The Next Big Thing.
These are the companies I write about each month in
Here's an example:
There's a company that has the potential to
take the diesel engine off the highway
and relegate it to museums. By building high-efficiency motors that
are powered by natural gas, this company is able to deliver the
same amount of horsepower that semi-trucks need while emitting
almost zero pollution and running at a significantly reduced cost.
Best of all, these vehicles -- the engines of our economy -- can be
powered by 100% American-produced energy instead of relying on
Middle Eastern sources.
Since I recommended this company,shares are up 42%.
Small security company... Niche technology... Trading at less than
five bucks a share. I identified it as the leader in its space and
saw the potential for it to lead a revolution in mobile payment
technology -- that is, in using your phone like acredit card .
I was right. Wanna know how I know? Because Tim Cook, theCEO of
Apple, bought the whole company to make sure that Apple has the
best mobile payment technology in the world.
Shares gained more than 200% -- in less than one year.
This is the power of
These exciting companies can move the needle on your entire
portfolio. Finding them, of course, takes some vision -- some
imagination. But I take care of that.
Action to Take -->
All you have to do is 1) sit back and let me deliver winners to
your inbox, and 2) never act on lackluster advice, and never buy a
boring ho-hum stock ever again.
If finding The Next Big Thing interests you, then I encourage you
to read my special report,
11 Surprising Investment Predictions for 2012
. Some of them have already come true, but there are still ways for
investors toprofit .
Go here to learn more...
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.