Three Stocks I’m Most Thankful for This Year
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The holidays are always a nice time to take a step back and better yet, take a step away from the hustle and bustle of investing. In the spirit of Thanksgiving, I thought I would take a look at three companies that I’m most thankful to be holding in my portfolio. Each one has provided an investing lesson that is nearly as valuable as the return that’s been added to my portfolio.
Buy and Hold Is Not Dead
Background: I first bought shares of Catamaran (NASDAQ: CTRX) (then SXCI Health Solutions) in April of 2009. Maybe you remember those days in the depths of the financial crisis when you had to be pretty brave to be buying stocks. As a longtime member of Motley Fool’s Rule Breaker stock service, I’ve grown accustomed to the need for bravery in buying certain stocks; SXCI was one of them.
What Made This Stock a Winner?: At the time, the half billion dollar company had less than a billion in annual sales and just $15 million in earnings. However, this disruptive innovator’s growth was just starting to accelerate as they were just beginning to roll up other smaller Pharmacy Benefit Managers (PBM’s) in an effort to offer a wider array of services to a growing list of clients. In the merger that created Catamaran, they joined forces with Catalyst Health Solutions in a deal that created this now $10 billion giant.
What’s the Future Hold: In the three and a half years since I bought SXCI, shares have risen nearly 900%. While the company is unlikely to repeat those returns, they still are just a quarter of the market cap of industry behemoth Express Scripts (NASDAQ: ESRX), which gives you a glimpse of their industry’s size. The industry is in consolidation mode, and Catamaran is already on the lookout for their next target.
Lesson Learned: Let your winners run!
Options Give You Options
Background: About a year after my brave bet on Catamaran, I took another brave step by adding “frankenfood” purveyor Monsanto (NYSE: MON) to my portfolio. What was different this time was that instead of just buying shares, I used an options strategy called a synthetic long. For those who aren’t familiar with the strategy, it simulates being long the stock as you buy a call option while simultaneously writing a put option at the same strike price.
What Made This Stock a Winner: What’s different about a synthetic long is that you use the equity in your brokerage account instead of cash or margin. In most cases, the broker will set aside around 30%, making this a leveraged trade. In my case, I followed along with Motley Fool’s Options service and went with the $70 strike at a time when Monsanto was trading around $72 a share. Over the years I’ve written calls against our calls and generated more than $30 a share in gains, which is 50% higher than the $20 a share the stock gained. That’s a pretty hefty leveraged return over the years of more than 150% against a stock that rose less than 30%.
What Does the Future Hold: With the global growth in the middle class we’ll need an increasing supply of food in order to meet the world’s needs. Monsanto’s products help farmers increase production to meet those needs. I continue to have a lot of options with Monsanto, including selling calls for income while enjoying continued leveraged upside.
Lesson Learned: Options can be long term wealth generators if used wisely.
Income is a Great Outcome
Background: I’ve owned units of pipeline giant Enterprise Products Partners (NYSE: EPD) for more than five years. Over that time, those units have risen nearly 90% while piping in a total of 28% worth of income back into my portfolio. It’s rare to find a company that generates both income and capital gains to the degree that Enterprise Products has over the years.
What Made This Stock a Winner: Over those years, Enterprise has steadily grown by building new midstream assets as well as acquiring complementary assets. Many of the assets they acquired came by rolling up their former publicly traded affiliates. By streamlining their ownership structure, they’ve bucked the trend of their more complex MLP peers like Kinder Morgan, which has four ways to invest in the company. This simplicity has enabled management to focus their efforts, which has yielded excellent results.
What Does the Future Hold: I see no signs of Enterprise turning off their income spigot any time soon. They are working their way through a backlog of more than $7.5 billion worth of projects that will be completed over the next three years. They have plenty of growth once they work past those projects. Looking again at peer Kinder Morgan, they’ve identified more than $11 billion worth of projects over the next five years. There are countless examples that demonstrate just how busy the midstream industry will be as they race to build out the infrastructure we need to meet the needs of our booming domestic energy industry.
Lesson Learned: Simple, boring investments can be big winners.
My portfolio has a lot to be thankful for this year. Investing in a balance of growth and income focused companies and holding for the long haul has led to excellent long term results. Finally, by adding options to the mix, I was able to leverage both my knowledge and portfolio for even greater returns. These are just some of the valuable lesson’s I’ve learned on my journey to Invest Better.
latimerburned owns shares of Enterprise Products Partners L.P. and Catamaran and has an options position on Monsanto. The Motley Fool owns shares of Catamaran, Express Scripts, and Kinder Morgan. Motley Fool newsletter services recommend Catamaran, Enterprise Products Partners L.P., Express Scripts, Kinder Morgan, and Monsanto Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!