Everybody loves a good "Buy one, get one" deal.
And my family is no exception.
We do most of our grocery shopping here in central Florida at Publix, and they are the Kings of BOGO. They even BOGO wine, and I'm a BIG fan of this practice!
Really, anytime you find your favorite stuff at bargain prices, it is like a little mini Christmas right in the grocery aisle!
But BOGO isn't restricted to retail. We can sometimes find BOGO situations in the stock market as well.
And today I want to share with you two stories of stocks that provided spectacular BOGO deals – and how you can profit on similar BOGO situations in stocks.
These Transportation Companies Looked Worthless, Until the BONUS Deal...
Consider the story of Kansas City Southern (NYSE: KSU). Back in the 1980s, Kansas City Southern was a sleepy railroad conglomerate that earned horrible returns on the capital invested in the company. It was easy to overlook the stock, especially since we were in the age of the junk bond–fueled takeover binge that was much more exciting and profitable. At first glance, there was no need to even consider the stock as a potential source of superior returns.
Those willing to do some digging, however, found that there was a gem within the dirt pile. As part of their efforts to earn higher returns, they had purchased some financial companies, including something called the Stilwell Group. You know it better as the Janus Group, the mutual fund group that was red hot back in the 1990s. When Kansas City Southern spun out Janus in 2000, shareholders who had uncovered the gem within earned a total return of almost 40 times their money.
Greyhound Lines Inc. is another excellent example of a hidden-asset stock. As a young man, I had occasion to ride the 'hound on several long trips, and I can tell you that it's a miserable experience. This was back before the days of watching movies or sports on your phone – so it was either read, sleep, or stare out the window. It was awful.
After discount airlines began operations in the 1980s, '90s consumers had more choices for their long-distance travel. It may still be a crappy experience, but flying a discount airline from New York to LA is only six hours of misery, not days. So naturally, the bus business began to decline.
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But that wasn't the only problem Greyhound had. They had labor problems and were hit by a nasty driver strike. They finally had to file bankruptcy to settle the strike. When they emerged from bankruptcy, no one cared about the company. It was still struggling with competition from airlines, and the ratings agencies hated the company. The stock traded as low as $1.50.
Some astute investors took notice that, while business was indeed horrible, investors were overlooking something critically important. Greyhound owned lots of building and real estate all over the United States. And some of the terminals they owned were right in the heart of major cities all over the country. So these investors began accumulating the stock – and within a couple of years, a Canadian transportation firm bought Greyhound to take advantage of all those valuable terminals. As a result, the stock tripled! It was a true BOGO stock. Buy the ugly bus business and get all the beautiful real estate for free.
This "Secret Sauce" Is What Makes BOGO Investing Profitable
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Finding BOGO stocks is not an easy process. It takes a fair amount of work to find these diamonds in the rough. You have to read a lot of reports, do a lot of math, talk to a lot of people, and really dig around. After all, they are often called "hidden-asset stocks" for a reason. If they were easy to see, they would be called "perfectly evident mispricings that offer extraordinary opportunities."
If you know which big fund managers have a reputation for buying hidden-asset stocks, you can make the research process a little easier. For instance, Boyar Asset Management and GAMCO Investors Inc. have long histories of finding BOGO bargains. But keep in mind: Each of these companies own several hundred stocks, so that is still a lot of companies to investigate.
Finding BOGO stocks is a lot easier when you are a research geek and reading addict like me. I also have the luxury of more than a few decades of rubbing elbows with some of the biggest players in the distressed investing, private equity, and value investing world. I know who has a great track record of uncovering hidden assets, and I pay very close attention to what they buy.
I keep a list of hidden-asset companies in my office and check it every week or so. While I am certain I would do okay if I just bought them all, okay is not enough. I want to do two shades past fantastic. The secret sauce that really makes BOGO investing profitable is to never pay for the hidden assets. I want the hidden assets for free at the very least. But even better, I try to buy the core business for less than it's worth too. In essence, I am getting paid to buy the company. I only buy them when my sabermetric system says the core business is a bargain and should provide outsized gains all on its own.
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My list of hidden-asset companies is pretty cool. One company on my list is a real estate firm that owns two clinical biotech companies whose drugs have had promising tests. Ordinarily, I would sooner bet the house on a slow horse than buy into clinical biotech, but if I am patient and get my price – and I will, it's already pretty close – I am getting them for free. This deal will allow me to own real estate in the US and overseas at a bargain price, and I get the biotech companies for free. I have all of the upside of clinical biotech companies and none of the downside.
Also on my list, I have an airline that owns a credit card operation that will be worth more than the airline itself. And fortunately for me, this airline company is valued the same as other airlines' stocks. Again, it needs to come back a little in price before it's a buy – but when it does, I will be buying two great companies for the price of one.
And one more on my list: I have an investment firm that also owns a large beef processor, timber assets, part of a European telecom company, a gold mining operation, and other assets that are not reflected in the current valuation of the company. I pay a discounted price for the investment bank, and get all of that for free.
I could go on, but you get the idea. There are a lot of hidden assets with the potential for spectacular returns if you know where to look, and I do. As soon as my sabermetric system says buy, I will rush the alert out to my fellow Heatseekers so they can all profit from the BOGO stocks.
If you're not a Heatseeker yet, click here to learn how to become one.
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The post Buy One Stock, Get Another Free... With This Proven Method appeared first on Max Wealth.
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.