This Century-Old Stock Has Gained 1,300% Since 1980

Dave Forest's picture

Thursday, January 16, 2014 - 11:30am

by Dave Forest

Many people don't believe that disconnects like the one I'm about to tell you about can happen.

They believe that with all of the eyeballs on Wall Street, someone (and likely many people) would surely spot a rising star like this.

But that's not at all true. And I can prove it to you.

Just look at the stats on a stock I've uncovered earlier this month in my premium advisory, Top 10 Stocks. This firm is one of the most established companies in the metals business. But it's not resting on its laurels.

In 2009, management set out a program of cost-cutting and efficiency improvements designed to boost this company's profitability. Since that time, margins have jumped to a projected 21.9% for 2013, up an astonishing 65% from 2009 levels.

Growth like this should send stock buyers scrambling to call their brokers.

But here's the incredible thing: Today, you can buy this firm for 45% less than when it started its relentless margin improvements.

This sounds too good to be true. Surely there must be something wrong. Perhaps there's a hidden defect that's causing investors to drop the stock?

The reason for this disconnect has nothing to do with that. The company is lauded by analysts and fund managers. It's a well-managed company with a large market share and global operations.

The reason for the firm selling so cheap has to do with one simple factor: perception.

To understand what I mean, let me tell you a story about how such situations lead to great buying opportunities.

An investor friend of mine, Gord, has always had a soft spot for International Business Machines (NYSE: IBM). IBM gave Gord's father his first job as young man in the rural Canadian prairies.

His father went on to spend the rest of his life at the firm. He was forever grateful for the opportunities he received there, which allowed him to put Gord and his brothers through college during some tough times.

Gord always thought of his father as somewhat of a visionary. After all, the old man had joined IBM in the early 1960s -- at the very time the company was leaping into the computer industry -- a move that would rocket it into the upper echelon of world commerce. Few others saw the potential at the time.

One day, Gord grew so curious he just had to ask his father how he knew to jump into computers at just the right time.

The reply was not at all what he expected.

"Computers!" laughed the old man. "There was an old weigh scale down at the butcher shop that said 'International Business Machines.' When I applied, I thought they were in meat packing!"

Gord's father in fact wasn't wrong. Food services actually used to be a pillar of IBM's business.

When the company was formed in 1911, a major part of its operations was in weigh scales, meat slicers and coffee grinders. It was through these everyday items that much of the public knew of the firm.

But it was another part of IBM's operations that would turn the company into a business superpower: punch card equipment. Few people foresaw that this uninspiring technology -- whose major application at the time was tabulating government census data -- would launch IBM's modern success.

We all know how it worked out from there. Just look how well IBM's stock has performed since 1980 even.

The story about Gord's father illustrates perfectly one of the main reasons that market disconnects happen: because investors perceive a company to be in a boring, outdated business -- when in fact nothing could be further from the truth.

Just imagine you were an investor in 1950.

Looking at IBM, you probably would have seen an uninteresting, old-world firm. The company had been around for 75 years selling everyday items to brick-and-mortar stores.

You also would have seen a company whose gross income had already grown 491% over the past decade. How much more upside could there be in selling food processing equipment and adding machines?

Thinking like this steered many investors away from IBM -- much to their detriment. By 1960, the company's income had increased another 580%. Those buying the stock during this period made a small fortune.

The thing most investors missed was that IBM was changing. Yes, adding machines were an integral part of the business. But there was much more happening beyond these straightforward products.

All because IBM's management took the company's slate of existing businesses and asked, "What else can we do with this?"

The answer was obvious. Punch cards were the foundation of the nascent computing industry. So why not use IBM's expertise here to build one of the world's premier computer makers?

This is the kind of forward thinking that keeps the world's greatest businesses on top of their industries... for decades and even centuries.

You can see how the world's greatest companies have a way of reinventing themselves. They defy expectations. Just when you think their business is becoming antiquated, they leverage their corporate skills and expertise to make a leap into a completely new field.

That's exactly what we're seeing with the company I told my Top 10 Stocks subscribers about. Now, out of fairness to my readers, I can't reveal the name of the stock to you today. But I think stocks like these should be the core of every investor's portfolio. In fact, we have a name for these stocks... we call them "Legacy Assets."

Simply put, these are stocks that you can buy, hold and depend on them not just for weeks or years... but for generations. For those looking for a great opportunity to create a legacy of wealth for generations to come, I've put together a special report -- "The Top 11 Legacy Assets Of All Time". In it, you'll see how several now-billionaires created fortunes by simply owning one or more of these investments. You can view this latest research here.

Dave Forest does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of IBM in one or more of its “real money” portfolios.