Stocks

My Kind of Valentine

By John Del Vecchio  |  February 14, 2019

If you’re celebrating this Valentine’s Day with a loved one, chances are you’ll share a nice bottle of wine, maybe some bubbly, perhaps even a nightcap…

What better way to honor the day than with a dozen roses, a lovely meal, and an adult beverage or two?

Well, I’d suggest the real way to “celebrate” is to trim those expenses…

As I noted in a recent series of articles, real “wealth” is freedom, and the way to get there is through sound financial management…

But – because, after all, I’m not one of those “kill all the ‘Hallmark’ holidays” killjoys – I do have a have a spirited gift in mind for the day: a profitable addition to sweeten your stock portfolio. A Valentine’s Day gift that’s only $29, and will get you much further than any bottle of bubbly ever could.

This month’s Hidden Profits recommendation is the little-known king of booze. You might not know the company, but you probably know its brands.

Indeed, it’s the perfect Hidden Profits stock. Management recently refocused its portfolio and used asset sales to pay shareholders first.

Shareholders first… That’s the kind of commitment we like to see at Hidden Profits.

Let’s face it: Booze is a great business. Consumers are loyal. And when I think of that kind of loyalty, I think of my dad. My Dad drank Seagram’s VO on the rocks with a splash of water for about 60 years.

When VO wasn’t available, he could tell the difference. He could even distinguish something “premium,” like Crown Royal, a “higher end” Seagram’s whisky. Not only could he taste the difference; he’d complain about it. Every time.

He loathed settling for anything other than a VO.

That sort of brand awareness – that sort of “love” – creates a locked-in customer. That, in turn, makes for high “switching costs.” And those high switching costs generate amazing financial characteristics, chief among them free cash flow.

Plus, if the economy tanks, restaurants and bars might reveal “consumption cutbacks.” That just means people are stopping off at their local dispensary before settling into their couches – beverage(s) in hand(s).

In other words, whether good times and bad, most people will throw back their favorite tipple.

What’s more, this company right in the sweet spot of demographic trends.

You see, Millennials are a huge driver of alcohol consumption. They’re about 32% of industry sales. And they prefer premium brands. Also, they’re cutting back on wine and beer in favor of more expensive liquor.

That means greater sales leverage. If volume is a bit flat, dollar sales can still rise due to higher-priced products growing faster than the market. Management has the company in the middle of this “sweet spot,” and cash flow is just gushing.

Note too that although Millennials like to try different brands, once they settle on something that really wets their whistle they’re extremely loyal. And they promote their tastes on social media.

It’s an advertiser’s dream…

Favorable demographic trends, premium pricing, customer loyalty, and loads of cash flow drives outstanding finance performance. Our favorite not only buys back stock. It pays an attractive dividend, too.

Its love for shareholders was well supported by strong earnings for the first half of its fiscal 2019. While many companies are nervous about the global economy, management made very favorable comments about the state of its business.

And, when the market imploded in late 2018, this stock held its own. And it could certainly make much higher highs as it capitalizes on its business momentum.

It’s my Valentine this month.

Make it yours and your loved one’s too for no more than $29, and only today for this fine day of love.

John

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John Del Vecchio

John Del Vecchio is the author of the bestselling book, Rule of 72: Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio.

As the in-house stock market guru and forensic accountant for Dent Research, John stood on the shoulders of the great David Tice, James O’Shaughnessy and Dr. Howard Schilit, and built a framework of algorithms and a multi-factor grading system that has made him one of the more successful short-sellers around.

John is also the executive editor of our Hidden Profits newsletter and our trading service Small Cap All-Stars.

He graduated Summa Cum Laude from Bryant College with a B.S. in Finance and was awarded Beta Gamma Sigma honors. He earned the right to use the Chartered Financial Analyst designation in September 2001.MORE FROM AUTHOR