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Tuesday, June 11, 2013 - 13:00

Here's How To Invest Like Private Equity Or Venture Capital Firms

Tuesday, June 11, 2013 - 1:00pm

What I'm about to show you will probably be new.

Over the past few months, my staff and I have read hundreds of newspapers, blogs and financial articles. As shocking as it may sound, we've never seen one mention of what I'm about to reveal.

In short, I've come across 17 companies that appear to be normal, everyday businesses. If you were to see their ticker symbols, you probably wouldn't think anything of them.

But if you looked a little deeper, you'd quickly discover that they are unlike any other group of stocks on the market.

You see, because of how they were formed, they have a special advantage that gives them a leg up on the competition.

Most importantly... because of this special advantage, they're making a lot of money.

Here's how they work...

In order to grow, companies often form partnerships.

Most partnerships involve two separate companies -- like when Apple and AT&T created a partnership around the iPhone in 2007.

However, some companies form a radically different kind of partnership.

Instead of teaming up with another existing company, these firms simply create a spin-off company and make it the new partner.

These companies then buy a large ownership stake in the newly created firm and give it preferential treatment.

For example, the larger partner might sell assets to the new company at bargain prices. Or it might buy up valuable property and simply hand it over to the younger partner.

In other words, because it owns a big chunk of the new company's stock, the larger partner will take an active interest in assuring the success of its smaller partner.

Sound too good to be true? It's not. This is happening right now. Let me give you a real-life example...

Consider a little-known oil and gas company called NuStar (NYSE: NS).

Since its early days, NuStar has had what I call a "Rich Parent" that's fostered its growth and development.

For example, in January 2002 NuStar acquired a 270-mile-long crude oil pipeline from its "Rich Parent."

Then in March 2003, it acquired another pipeline system in Texas -- also from its "Rich Parent."

That same month, the firm closed yet another sweetheart deal... this time even bigger than the previous one. Once again, the company on the other end of the agreement: its "Rich Parent."

In total, from its IPO in 2001 to the middle of 2007, NuStar completed 13 acquisitions. In more than half of them, the company it bought from was none other than its powerful, wealthy parent.

These acquisitions provided rising cash flows to the young company. Had you purchased $10,000 worth of NuStar in 2001, you would have netted $680 in distributions that year alone.

And thanks to its rapidly increasing dividend payments, by the end of 2002 you would have received $1,060 just from dividend payments -- a 55% increase over the previous year.

But the increases still weren't done. In 2007, your $10,000 would have paid you over $1,500 -- a 118% increase in just seven years.

Even more impressive: over the same period this company beat the market by a better than 5-to-1 margin, returning 150% versus the S&P's 26%.

Bottom line -- since its inception, NuStar has crushed the market while paying its investors nearly $2 billion in dividends. And it's managed this feat in no small part thanks to its "Rich Parent."

And the great thing is, NuStar isn't an isolated example. I've identified more than 17 companies benefiting from the same "Rich Parent" advantage.

As a group, their performance has been astonishing. They've squashed the S&P 500 index over the past 10 years, returning 529% compared with just 77% for the S&P.

That hasn't been by accident... they've had help most corporations don't have access to. And I predict these "Rich Parents" stocks will continue to outperform.

P.S. -- My favorite of these stocks is the newest of its kind. It went public just months ago, and is not yet on many investors' radar screens. I believe it has the potential to quickly double in price while significantly boosting its dividend. To learn more about this opportunity -- and others like it -- click here.

Elliott Gue 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.

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