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Saturday, May 29, 2010
The most valuable stocks in the world belong to a small group of companies I call World Dominators.
A World Dominator business is the No. 1 company in its industry. You're probably familiar with a lot of them. For example, UPS is the No. 1 package delivery company in the world. Wal-Mart is the No. 1 retail network. Intel is the No. 1 maker of semiconductors.
Some people won't buy World Dominators because they're too big. They're missing the point. Big size is part of what keeps your money safe. In 2008, Wal-Mart was one of just two stocks out of thousands I'm aware of that showed a positive return. And is anyone going to push Wal-Mart out of the No. 1 spot any time soon? No way.
Anybody who says you can't make big money quickly with World Dominators is wrong. My readers made 48% on UPS in less than two years, while the S&P 500 rose just 37%. We're up 45% on Intel in 13 months. We ended up making more than a 50% on TJX, the company that runs the No. 1 AND No. 2 discount clothing stores.
Forget index funds. Forget small, junky stocks. You want World Dominators. And right now is the best time to buy World Dominators in almost a year. I'll show you why in a minute. But first, let me explain what makes a World Dominator...
Being No. 1 in your industry isn't all there is to truly dominating the market. A true World Dominator must consistently generate excellent business results.
That means thick profit margins. Intel routinely earns gross profit margins in excess of 50%...
It means lots of cash coming in. Microsoft will easily generate more than $20 billion in free cash flow this year...
It means you don't have to spend a lot to maintain the business. Coke's capex will come in at less than $2 billion this year, and it'll generate cash flow in excess of $8 billion...
And it means high returns on equity. UPS, for example, has consistently generated more than 30% on equity the last few years. (FedEx doesn't even come close.)
To buy the World Dominators at the right price, you must understand their value. There's nothing in print on how to value World Dominator stocks, so I had do the work myself. I found that, when another company acquires a World Dominator, it sells for about 30 times free cash flow.
Procter & Gamble bought Gillette for 30 times free cash flow. InBev bought Anheuser-Busch for 28 times free cash flow. And Mars bought Wrigley's for 32 times free cash flow. All three were bought by the most knowledgeable people in their industry. Warren Buffett was in all three deals and gave each his blessing.
World Dominators are worth so much to knowledgeable insiders because dominating the global market for a product or service is the most valuable thing a business can do.
But today, many World Dominators sell for just 15 times free cash flow or less. One sells for 10 times free cash flow. Dirt cheap. You're getting the Rolls Royces of the stock market half off.
World Dominator companies rarely get cheap because everybody knows how valuable they are. But with markets so volatile today, high-risk stocks have stolen the spotlight. The safe, low-risk World Dominators are left in the shadows.
Now, it's time to dump that expensive, high-risk garbage before it crashes. And it's time to buy the low-risk and steady returns of the World Dominators. Recommending World Dominators is one of the ways I plan to get my subscribers safely through the next several years, which promise to be difficult ones.
Anyone who owns stocks should own a core position in the World Dominators. If you want to protect your wealth and earn a good return, too, don't get caught owning risky garbage stocks the next time Mr. Market falls out of bed. Protect and build wealth in good times and bad. Buy the World Dominators now, before they get expensive again.
Wal-Mart, the world's largest and most efficient retail network, is one of Dan's top "World Dominators." Read Dan's classic Wal-Mart manifesto here: The War Against Poor People. And read an update on the Wal-Mart revolution here: Why You Should Cheer the Most Hated Company in America.
One of the world's best-kept wealth secrets is that World Dominators yielding less than 5% a year can make fantastic, money-multiplying INCOME investments... If a growing stream of income that's impervious to economic disaster is what you seek, World Dominators are what you need to own. Get the story here: Now Is a Once-in-a-Lifetime Opportunity for Income Investors.
CHART OF THE WEEK: GOLD? STOCKS? WHAT'S THE DIFFERENCE?
Gold gets all the press for being a hedge against crazed government spending and paper money debacles... but this week's chart displays another.
Our chart of the week is a "performance chart." This type of chart plots two assets together to provide a picture of how they are performing relative to one another.
In this case, we're looking at the past 12 months of gold (blue line) versus the performance of the benchmark S&P 500 stock index (red line). As you can see, gold and stocks are generally moving in lockstep with each other... and both have gained about 25% in the past year (gold is up much more than stocks over the past decade, however).
Stat of the week
In The Daily Crux