The Search for 20% Annual Returns

As some of you know, I analyze and discuss attractive stocks in the market over on Patreon, which you can assess here. However, since I have done a terrible job of marketing it, I wanted to include an excerpt from an entry I posted earlier today, with the name of the stock redacted for the obvious reason:

“The company, which earned $2.65 per share in profits in 2015 during its first full year as a standalone publicly traded corporation, is expected to earn $3.85 per share in profits this year, which is a growth rate of 13.26% annualized. And those profits are going to be somewhere north of $2.5 billion in 2018–for a size comparison, Coca-Cola earns a little over $9 billion in annual profits, making [redacted] so massive that it is one-fourth the size of the corporation that brings the world 3.5% of its consumable beverage supply. People don’t think of it as a blue-chip that reaps the stability benefits that come from massive size, yet there it is.

And, boy, is there retained cash being retained to shareholders. Because it didn’t pay a dividend from 2014-2016, it had $7 billion roll in as retained profits that is only now getting deployed. And even with the initiation of a dividend in 2016, it only amounted to a payout ratio of 20% so [redacted] has retained another $5 billion in profits over that time, too…

The list of stocks that have a fair possibility of five-year, 20% annual returns are few and far between. And yet, [redacted] has a spot on that list. Its P/E valuation could rise substantially. It is generating almost double-digit organic profit per share growth, and with expected repurchases, the earnings per share growth has a very high possibility of being in the double-digit growth rate. I personally think the stock is worth $50 right now, and should trade somewhere between $80-$100 within the next five to seven years, to the point where I consider [redacted]… to be the stock that will have the best five-year performance ahead.”

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Originally posted 2018-10-07 13:59:32.

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