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This is Porter’s Daily Journal, a free e-letter from Porter & Co. that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.
Supply the U.S. with energy… Out with the old, in with the new… Heading to Asia to find bargains… It burns its coins… A 400-year-old Japanese conglomerate… Setback for Venture Global… Oil is getting really cheap… |
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If you could buy something for 20 cents that would eventually be worth $1, you would do that all day long…
Of course, most of you don’t believe that’s possible… these incredible opportunities disappeared in the bull markets of the past. But over the last few weeks, Porter has shown how investors can make enormous, life-changing profits in stocks that are (almost) sure things.
He started with the story of the Philadelphia & Reading Railroad (“P&R”). For much of the 1800s, until the early 1900s, this railroad and coal producer would become the most valuable economic engine in the country – hauling its anthracite coal around the growing United States.
Anthracite – a hard, clean-burning coal – powered the nation’s energy revolution in the 19th century. At one point, the railroad supplied nearly 20% of all U.S. energy.
But debt and success did it in. By the early 1900s, the company had outstanding bonds totaling $135 million – that’d be about $5 billion today – and its dominance attracted anti-trust actions. Meanwhile, coal’s energy dominance faded as cheaper alternatives emerged.
In 1954, it had a $19 million market cap – but it had millions in locked-up capital. Warren Buffett’s mentor Ben Graham bought 5% of the company, became its chairman, and installed a savvy CEO. Buffett made the stock his largest holding, buying in under $10 a share.
They renamed it the Philadelphia & Reading Corporation and liquidated excess inventory, generating $7.3 million in tax losses. These tax-loss carryforwards and the cash these sales generated funded diversification – Union Underwear in 1955 and Acme Boots the next year… clothing firms, toys, and eventually Fruit of the Loom in 1961.
Over 13 years, management extracted almost $400 million in value from P&R. But there was no guessing. The capital was in the business all along. They just had to get it out. And they did for a gain of 2,000%