A Simple Sign That A Stock Is Worth Owning Forever

Dave Forest's picture

Thursday, June 12, 2014 - 11:30am

by Dave Forest

Barring some sort of apocalypse, these companies aren't going anywhere.

Many have been around long before any of us were born -- surviving and prospering through wars, recessions, flash crashes and financial panics.

It's not just the companies themselves that have stood the test of time... Investors who bought stock in these companies and held on for the long-term have done well, too.

Even with the market roaring back from the depths of the Great Recession, this group of stocks has outperformed. See for yourself...

Around the office we have a nickname for these stellar investments. We call them "Forever Stocks." That's because we think they're such solid companies, they're worth buying and holding onto for decades.

These are world-dominating businesses in their respective industries. But the reason these outstanding companies succeed is because they all have one thing in common...

They all own something that no one else can buy or create... or what I like to call "irreplaceable assets."

Whether it's a hydroelectric dam, a massive land position, railways, airports -- these are all irreplaceable assets that can't be easily replicated.

But the irreplaceable assets idea extends beyond just big, physical facilities. Some invaluable, irreplaceable assets are tiny. Take this one for example:

I don't even have to say this company's name. You know exactly which company I'm talking about. What this little symbol represents cannot be duplicated. Just ask the legions of java-craving folks around the world who will walk five extra blocks in order to get a grande latte from Starbucks (Nasdaq: SBUX).

The point is, a rival firm could spend a billion dollars and still not have the kind of power that a company with an irreplaceable asset has.

Recently, I found an opportunity that -- thanks to the U.S. shale energy boom -- should give investors a way to own some of the most valuable irreplaceable assets in the world.

As with most irreplaceable assets, this one is simple. In fact, most of us are already familiar with these substances from our daily lives. They're known as natural gas liquids (NGLs).

These are chemicals that come out of shale gas fields alongside the methane gas that is the primary target of drilling. And as luck would have it, thanks to the shale energy revolution happening in the United States, this resource is abundant.

Most of us are actually familiar with these substances from our daily lives. One of the main NGLs coming from shale wells is propane -- the same stuff we use to fire our barbeques, and what many parts of the country use for home heating.

Another natural gas liquid is butane -- the substance used to keep pocket lighters burning.

Both of these natural gas liquids are sought after by buyers globally -- for a much larger-scale purpose: feeding the massive petro-chemical business. Many consumer goods are made from advanced plastics like polypropylene and polyethylene. You've likely used these substances many times -- whether it's flipping the lid of a Tic Tac box or putting on a micro-fleece vest.

These items used to be made primarily from oil, but high crude prices have made it uneconomical for manufacturers to keep producing this way.

Fortunately for petrochemical firms, the shale drilling revolution has given global manufacturers another option: buy cheap and plentiful natural gas liquids from the United States.

That's exactly why U.S. NGL production has surged 60% over the last five years.

Exporting natural gas liquids isn't as complex as natural gas.

In fact, NGLs are easier to export, because they're -- well -- liquid. There's less processing involved to get them into a shippable form.

But in order to export natural gas liquids, you still need a number of things: a pipeline to get supply to a coastal location, storage facilities to hold supplies until vessels arrive, and a loading terminal where boats known as "very large gas carriers" (yes, that's a technical term) can load up before sailing abroad.

As a result, there are really only two companies today with the irreplaceable assets necessary to export significant quantities of NGLs. Readers of my premium newsletter Top 10 Stocks have taken advantage of both of these companies. One is Enterprise Products Partners (NYSE: EPD) -- which sells liquids from its facilities on the Houston Ship Channel.

Enterprise Products Partners owns more than 50,000 miles of pipelines used to carry natural gas, oil, natural gas liquids and refined chemicals around the country. These pipelines are the ultimate irreplaceable asset. Another company can't simply build a pipeline next to the existing one. And these pipelines aren't about to be replaced by some new technology.

This is exactly why I added shares of Enterprise to my Top 10 Stocks portfolio in early 2012. The stock is one of our biggest winners -- up 56% in just over two years. Right now, the stock pays a respectable 4% yield, but I expect that grow at a healthy clip over time. Enterprise's steady growth has allowed it to raise its dividend a whopping 40 times since 2004.

Needless to say, we don't plan on selling these shares anytime soon...

Simply put, when you come across a company that has irreplaceable assets, and its shares are selling for a great price, you often end up with a great investment you can own for decades. These are opportunities worth jumping on.

P.S. -- Enterprise and other companies that control irreplaceable assets make for the world's greatest investments -- ones you can buy today and hold onto for years or even decades. In my latest report, "The 10 Best Stocks To Hold Forever," I'll show you several other stocks that carry "forever" traits like this, including a utility company that's paid 120 consecutive dividends and has returned 11% per year since 2004, plus a leading oil driller that pays 50% of its income to shareholders and carries a dividend yield over 11% right now. You can visit this link to find out more.

 

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