If you're one of the few people who didn't get to see this, here's a link to the Heatseekers video I released recently. It's all about how I use baseball performance metrics to feed a totally undefeated track record.
"Heatseekers" are all-star stocks at bargain prices, and I love to find 'em.
This weekend, I want to show you a little about how that process works - the kinds of recommendations I make for Heatseekers, how I pick them out, and of course, what makes them special.
And best of all - right up front, before we dig in - I'm going to give you a "bonus" pick absolutely free.
You won't find it in our official model portfolio, but it fits two of my strongest criteria. It's just like the stocks we go after each week...
If you buy this, you'll be a very happy camper over the next few months...
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"Boring" Businesses with Forgettable Stories and Great Strategies
Star Group LP (NYSE: SGU) is definitely in a really boring business: They sell heating oil and propane to customers in the United States.
Most of their operation is in the Northeastern United States, but they also serve Michigan, Tennessee, the Carolinas, and Georgia. In all, they have 455,000 retail and commercial customers under contract and another 74,000 using on-demand delivery.
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Star Group also installs and services HVAC equipment. It even has plumbing and home security divisions that provide those services to 31,000 customers.
This is not rocket science or cancer-curing stuff, but it is a demand that's not going to go away anytime soon.
What is pretty sexy is the way Star Group has built the business into the largest heating oil company in the United States. It has basically rolled up what is primarily a mom-and-pop business into a larger, more efficient company.
Star Group actively scouts for small dealers that are looking for an exit strategy and negotiates a price that allows it to bring them into the fold profitably.
Why does that approach work? The heating oil business is heavily regulated and dependent on commodity prices to a large degree. Those costs and risk are better managed at a bigger company, so many owner-operators are happy to sell out and move on.
The big knock on Star is that heating oil is slowly but surely declining as homes convert to natural gas. Management estimates that the company loses about 1% of its customers a year to natural gas conversions across its market area.
However, switching your home from oil to gas is not cheap, and most homeowners choose to simply stay with oil.
In addition to the cost and hassle of conversion, a lot of folks just like oil heaters better. Heating oil burns hotter and warms your house a lot faster than natural gas systems.
In regions with cold winters, heating oil can be a much better choice to keep the wolves of winter weather at bay. The market may be smaller than it was decades ago, but there are still plenty of opportunities to make money.
Star Group estimates that it has between 5% and 6% of the home heating oil market in the United States, so there will be plenty of opportunities to execute smart, financially attractive acquisitions.
It is also buying propane and motor vehicle fuel delivery companies to diversify outside of the core heating oil market. In 2017, it acquired four home heating oil dealers, two propane dealers, and a plumbing service provider.
As long as Star can find businesses that fit its mold, it can grow at a pace that almost guarantees us big long-term profits.
Crunch the Numbers to Find a Fantastic "WAR" Rating
The story is kind of boring, but it is the numbers that can make us money. Star Gas has a wins above replacement (WAR) of 9.3, so this is a fantastic business in fantastic financial condition.
Because almost nobody on Wall Street or the mainstream financial media cares very much about the heating oil business, we can also buy into the business on very attractive terms. The cost per WAR for Star gas is just .83, so it is a bargain price that should allow for significant long-term gains.
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This is like signing all-star Jose Altuve to play second base for the cost of a triple-A prospect.
On top of the long-term gain potential, we get paid pretty well along the way.
Star Gas currently yields 4.8%. The company is required by the original partnership agreement to distribute all available cash at the end of each quarter after subtracting the cash reserve the board feels is necessary to run the business.
This means that as the company grows through smart dealmaking, the dividend will go up year in, year out.
So Star Group is not a thrilling story or a thrilling company, but the numbers are pretty spine-tingling. A great business at a great price with a high and rising dividend yield is a proven way of piling up wealth.
Remember, we are not picking stocks to trade but buying businesses to own for a long time. That's how you get rich, not just by snapping up the hot story of the day.
And that's how I pick "Heatseekers" - a new one every single Monday.
Never Buy a Losing Stock Again
Our newest editor, Tim Melvin, has developed a strategy that eliminates stock losses and allows him to close out positions with 300%, 500%, even 787% upside.
How does he do it?
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.