Stansberry Radio Interview Series: Read this and you’ll know more than 99% of investors
Welcome back to the Stansberry Radio Interview Series.
As you know, every Saturday the Stansberry Radio Network is bringing you the most valuable ideas from the most intriguing guests from all of our shows.
But today I’m going to do something extra special. Something I almost never do. I’m going to unlock one of our Premium Member “Black Label” shows and let you in on some of our biggest investment secrets… FREE.
Once a month on the Stansberry Radio Black Label show, Porter Stansberry challenges his guests with ideas we don’t talk about anywhere else. The show is raw and uncensored. But those of you who are crazy enough to put up with our antics will find a wealth of actionable insight. Due to its highly controversial nature, this show is not available on iTunes or any other public website – only in the Stansberry Radio Premium Member archive.
Here’s what a few of our listeners have to say:
I would listen faithfully just for the sheer entertainment value, but I actually glean actionable ideas from the show which has already put money in my pocket. – Scott S.
Personally, I like all the stories you tell and the banter on the show… pure finances would be awful!! And you help me understand economics, politics, and how those play into finances. I have learned more from you than I did from my $100k MBA from Pepperdine! – Shannon F.
I’ve not asked the boss if I can unlock a Black Label for you today. You see, he’s in the Bahamas at our annual Spring Editors Conference… and I thought well, what the heck.
Sometimes it’s better to ask for forgiveness than permission…
So here goes…
Back in February, we recorded a conversation between Porter Stansberry and Brian Hunt while we were fishing in the Bahamas.
As regular Crux readers know, Porter is the founder of Stansberry & Associates Investment Research and the host of Stansberry Radio, a weekly broadcast that has quickly become one of the most popular online financial radio shows.
Brian Hunt is the Editor in Chief of S&A. He frequently contributes to Growth Stock Wire, DailyWealth, and the S&A Digest. Porter says when it comes to investing, “few people living in the world today know more than Mr. Hunt.”
In the interview, Brian offers up his definition of a great business… and some of the best names you can buy. Then he turns the tables, asking Porter the questions he thought you would ask if you were on board.
I think it’s one of the best Black Label shows we’ve ever produced. So sit back, grab a drink, and enjoy…
Originally aired on the Stansberry Radio Network on March 3, 2014
Porter Stansberry: Brian, welcome aboard. I’m excited to have you join us today.
Brian Hunt: It’s my pleasure Porter, and thanks for inviting me.
Stansberry: So Brian, let’s jump right in. What’s your personal definition of a great business? What’s a keystone metric or maybe two or three metrics that really drive your opinion of what makes for a great business?
Hunt: Well Porter, I’ve learned all this stuff from you and Warren Buffett, and I think the number one thing you’ve got to see is the brand power that allows for a competitive moat.
Companies like Coca-Cola, which has the best distribution business in its industry —that’s a competitive moat.
Stansberry: And one of the world’s top three recognized trademarks, Disney’s Mickey Mouse, being another.
Hunt: Exactly. You want to invest in these companies for 10 or 20 years. And so it’s a competitive moat that I look for.
I’m also drawn to companies that I love spending money with. I love spending money with Apple.
Stansberry: And their moat is that they have all of your content locked into their servers – into iTunes. And their focus on design makes them very unique in the space.
Hunt: Absolutely. You and I have also talked about companies that can sell things that are addictive in some form or another. That’s often a very, very good place to start in your search for long-term buys. Addictive products like cigarettes, sugar… chocolate. To some people it might sound sinister, but…
Stansberry: It’s not sinister. It’s giving human beings what they want and how they want it. People obviously have a love affair with branded consumer goods, which is really what we’re talking about.
OK, so I know that a moat is a very important concept and I think we’ve defined it, what else?
Hunt: Another thing that you’ve hammered home is to look for those companies that don’t require a lot of ongoing capital to sustain their business. A lot of our readers our enamored with gold stocks. But what they don’t realize is that the major gold producers cannibalize themselves every day. Their most valuable asset is gold in the ground… and they sell it away.
Stansberry: Yes, every day they produce income they’re losing assets. It’s like a snake eating its tail.
Hunt: That’s why gold stocks can be a very good trading vehicle – something you want to own for the short term – but long-term it’s just asinine to own these stocks because they do cannibalize themselves. A company like Hershey, on the other hand, does not deplete its balance sheet when it sells chocolate. It can just buy more ingredients and sell more chocolate.
Stansberry: OK, what’s number three on your checklist?
Hunt: Number three is for the traders out there. It really doesn’t apply much to long-term investors who are interested in compounding their returns.
I’m asset agnostic and I’m trend agnostic. I don’t care if something’s going up or down and I don’t care what the asset is.
Let me give you an example. People who get really interested in gold and gold stocks too often become true believers, and I think that’s just insane. They fall in love with a stock that will never love them back.
A trader has got to be willing to consider anything in any direction and never fall in love with any of them – they’re all just trading vehicles. Don’t fall in love with these things, that’s the key.
Ok, so Porter, let me ask you a few questions…
Stansberry: Great! Give me some tough ones.
Hunt: Let’s say I’m looking for two or three lifetime legacy stocks… Maybe for a trust for my children.
Stansberry: That’s a really tough question. Lorillard definitely sticks out in my mind as being very much in that category. Lorillard owns the menthol cigarette maker Newport and they’re the leading maker of the new e-cigarettes.
I think that e-cigs will be the way people smoke marijuana. So as marijuana is legalized, I believe that Lorillard will be able to get into that business as well. That’s all conjecture on my part, but that’s what I see happening over the next ten years.
In the meantime, they’ve got a great franchise. It’s completely capital-efficient. They have very few employees. What they do is contract out all of their farming and all of their manufacturing. They just own the brands, which is really, really capital-efficient. In fact, they’ve returned 60 percent of their gross margin to investors over the last ten years. So it’s one of the most capital-efficient stocks I’ve ever seen. Plus it has all this other stuff we’re talking about… the moat, the branding, the high gross margins – all that good stuff.
I’d encourage any of you listeners to go check out Lorillard and see for yourself.
Another legacy stock is McDonalds, and surprisingly, McDonalds has pulled back recently. You get now get it for around ten times earnings.
Hunt: I agree. I think a lot of our readers would also like to know that so many of these capital-efficient businesses that you identify are fairly mature businesses. They’re going to produce great returns and they’re probably the best ones to buy. But everyone loves a good small-cap story that could grow into a super capital-efficient business. Do you have anything like that on your radar?
Stansberry: What comes to mind immediately for me right now is the oil patch. There are some very young companies out there that are developing really good shale fracking techniques. I’m talking about the service companies that have an edge, or even companies that are able to buy really long-lived reserves at the right prices.
I would look into the energy patch carefully, and I’ll throw another name out there. It’s one we’ve talked about a lot. It’s Krispy Kreme. You know, we’re still at a very early stage with this brand.
Hunt: It’s an addictive substance…
Stansberry: It’s a very addictive product. People love it. People will stand in line around the block to get it, and they’re opening up outlets all around the world where people have not yet experienced the whole sugar and diabetes crisis that we have.
Hunt: Porter, you’ve often said that you “lust after bear markets.” Could you explain?
Stansberry: When there’s a bear market or when there’s a disaster, you don’t run from it. You actually – like the sophisticated investor – run towards it to get the good bargains.
Porter Stansberry: Yeah, which is why we’re sending an analyst to Ukraine.
Hunt: That’s right.
There will be another 2008-2009 bear market soon, and what we’ve all got to have is that shopping list of great stocks to buy.
Speaking of stocks that have been beaten down, I’m really interested in the offshore drilling sector. You know, companies like Ensco, Transocean, Diamond Offshore… I’m sure the listeners would love to hear a little bit more about what you think is going to happen over the next six months with that sector.
Stansberry: I’ll just tell people point-blank that I think one of the biggest new trends over the next decade is going be the deep water Gulf of Mexico. And I’ve got all kinds of reasons for believing this.
The essence of the argument is this: Do you know how many barrels of oil were coming out of the BP Macondo well that spilled all that oil into the Gulf?
The answer is 60,000 barrels a day, according to the best estimates. That’s one of the largest runaway wells in history. At the turn of the last century, Spindletop, the big well in Texas, was spilling 100,000 barrels a day uncontrolled. And literally, for the next decade, Spindletop produced more oil than every other field in the world combined. When you find these gushers, it’s an incredible, rare event.
The average well coming out of the deep water Gulf has been about 15,000 barrels a day, which is still very good. But with seismic technology and with a new understanding of the deep water Gulf’s geology, I think you’re going see enormous new discoveries over the next decade in the deep water Gulf.
I think that in the long term, meaning five to ten years, the future of the offshore drilling companies is very, very bright.
Well, we should call that a wrap. I think we’ve given readers a lot of value… And I’m on my third gin and tonic.
I really want to thank Brian Hunt for joining us today. Great questions.
Hunt: You’re welcome. Thanks for having me.
Crux note: You can listen to this highly educational – and entertaining – interview in its entirety, for free, right here.