Let me start with a simple confession -- I
There's simply nothing like a great living space to make you
feel like a million dollars when on vacation or business.
I can still remember vividly the thrill I had when I last got
a luxury room a few years ago at the Ritz-Carlton hotel. That
time when the bellboy led me down the hall and swiped the special
card for the doors that led into the coveted presidential
The room didn't disappoint. The wall-to-wall marble and gold
trim were immediately eye-catching. The furniture was immaculate
and perfectly laid out. The kitchen and bar were fully
It was paradise with a card key.
I enjoyed those days immensely. In fact, I didn't leave the
room much -- instead having people come up for meetings in the
lavish sitting area. I remember one incident where a guest asked
if he could smoke in the room -- and upon phoning the front desk,
I was told, "Sir, you can do whatever you like."
This feeling is the power of the luxury brand. It's not hard
to see why people globally pay billions for it, and why the
companies that offer it enjoy hefty profit margins and solid
And when it comes to high-end products, hotel rooms -- and the
companies behind them -- may be the cream of the crop.
It's for that reason that the high-end hotel business fits
very well with the list of investing virtues I hold very dear in
my premium newsletter,
Top 10 Stocks
Here are some of the key points from my checklist...
1. The world's greatest businesses sell their products at
When it comes down to it, a hotel room is just a few hundred
square feet of empty space. And yet, luxury-branded operators are
able to sell the same space for hundreds or thousands of dollars
more per night than their competitors.
2. The world's greatest businesses have a global reach
and appeal for their product.
Whether you're from Dublin, Dubai or Dakar, luxury hotels appeal
to a desire common to all humans -- the wish to be special.
That's a selling point that transcends national and cultural
borders. And this results in a near-global market for these
3. The world's greatest businesses dominate their
The thing about luxury is -- it's nearly impossible to create
quickly. Sure, you can deck out a room in fancy marble and the
latest chic furniture, but when it comes to true luxury -- and
the status it carries with it -- there's a strong element of
You're going to get more jealous glances at a cocktail party
if you just got back from a stay at the Four Seasons rather than
a trendy new start up -- no matter how good the latter might
While these are great things to have in an investment, there's
one of my rules for great businesses where asset-intensive
companies like hotel chains tend to suffer.
That's free cash flow.
4. The world's greatest businesses generate enormous cash
flow with low capital spending requirements.
Most hotel chains have a large portfolio of high-traffic
facilities that need constant maintenance -- meaning that
sustaining capital expenses for upkeep can take up good chunk of
operating profits. This reduces free cash flow that can be paid
to investors in the form of dividends or share buybacks.
But it's important to note that I said most hotel chains...
because I've found one industry-leading firm that bucks this
trend -- especially against the substantial revenues and cash
flow it makes from its unparalleled portfolio of global
The company I'm talking about is
Starwood Hotels & Resorts (NYSE:
-- a management company that holds some of the world's more
recognizable hotel brands --including Westin, Sheraton, W., and
Putting its portfolio together, Starwood is one of the largest
luxury hoteliers in the world -- with 1,175 properties spanning
nearly 100 countries.
At last check, Starwood was able to charge an average of as
much at $315 for a night's stay at some of the chain brands it
That's a premium price, suggesting this is a company that
knows how to create luxury --
the kind guests will pay for
But what really makes the company unique -- and a great
investment -- is its business model.
Since 2000, the firm has been transitioning from being an
owner of hotels to an operator.
That's included the divestment of 128 properties, as well as
the conversion of the majority of the firm's properties to a
managerial relationship where they provide branding and
operational expertise, but don't actually own the property.
And when Starwood has acquired properties and applied its
magic to them, they sell them for premium amounts -- enough that
the firm nearly completely covers its maintenance expenses.
During 2013, nearly 75% of the firm's revenues -- over $4
billion -- came from property management and other services.
That shows just how good Starwood is at its business.
In other words, not only are customers willing to pay top
dollar for the luxury hotel rooms, but
hotel owners globally are willing to pony up billions
just to use the company's name
, as well as their expertise in creating top-dollar guest
Put it all together, and it's not hard to see how this
high-margin, luxury-brand stock has crushed the market over the
past five years -- beating the S&P by more than 112
By combining its strong cash flows with its ultra-low net
capital spending, Starwood can return a huge cut of its profits
to shareholders... In fact, last year alone, the
hotel firm shelled out $572 million to shareholders in
dividends and share
And based on the $426 million in operating cash flow Starwood
has made through the first two quarters of this year, I expect
the company to have close to another billion-dollar year in 2014.
That should mean lots of available cash -- which I expect will go
into continued share buybacks, debt retirement and, of course,
In fact, the company has been so successful this year, the
board of directors has already approved a special dividend of
$0.65 per share -- as well as a new $1.1 billion share repurchase
With all these advantages -- and a time-tested business
strategy -- I'm happy to buy and hold Starwood as it continues
adding value globally, and reaping strong profits.
Companies like Starwood Hotels that dominate their market and
command large profit margins are part of a special group of
securities I call "Forever Stocks" -- stocks that are so
dependable, you could buy them today and potentially collect
returns from them for years or even decades.
In my latest report,
The 10 Best Stocks To Hold Forever
, I've detailed an investment that lets you own and collect
profits from dozens of infrastructure monopolies across the
entire world, as it pays you a dividend yield of 4.9%. Another
company dominates nearly 90% of its primary market and has turned
every $20 invested in 1972 into $41,000 today. This is one of the
most epic stock-market runs in history -- and it happened despite
the '87 crash, the "Dot-com" bubble, and the Great Recession. To
get all the details on these companies, and
several names and ticker symbols
watch this free presentation.
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