Why You Matter
10 Revolutionary Stocks
As Christmas rolls near, my wife suggested I write about how important YOU are as a part of the Cabot family.
So I will, in a roundabout way.
One of the challenges of running a small business is finding good employees and managing them well, especially without the benefit of a full-time Human Resources department.
So a few months ago, I attended a two-day workshop in a Boston suburb, to be trained in a system that enables practitioners to better understand the personalities, communication styles and motivations of both employees and potential employees.
Most of the attendees were young women working in the personnel departments (sorry, HR departments) of large businesses. Many of them will spend the rest of their careers using this system (and others) to evaluate and manage people.
I was the outlier-not only because I’m a man, but also because I was the oldest person in the room and the only business owner. And I will only use this system occasionally.
But I enjoyed learning it. I enjoyed getting a little more insight into my employees. And I enjoyed getting a little more insight into myself!
What the system told me about myself was this:
I like to follow rules.
I like to create harmony rather than tension.
I like to help my team reach collaborative decisions.
And I like to do it all analytically, taking time to reach the best decisions.
All told, I like to “do the right thing.”
(By contrast, my father, who started this business 44 years ago, liked to make the rules, and he liked the team to follow his decisions, both of which are great traits for business founders.)
But what does “doing the right thing” mean?
Most basically, as in any business, it means working to ensure that revenues exceed expenses, so that all employees can be paid a fair wage, and the lights stay on.
But in this business, which I’ve been leading for 10 years and working in full-time for 28 years (and part-time off and on since I was a teenager), “doing the right thing” also means this:
It means finding and nurturing expert analysts who are passionate about following investing systems that work, and giving them a platform to share their recommendations with investors (like you) who need that advice.
It means helping investors (like you) find the system that works for them, whether they’re looking for guidance on their very first trade or whether they’ve been investing for decades.
It means building a team of behind-the-scenes co-workers (customer service, editorial and graphic production, database and Internet technology, marketing) who can see the big picture of this business, and educating them on the value of working together so that we can all achieve more than we could individually.
It means coping with-even embracing-the inexorable change that characterizes the stock market, the publishing business, the marketing business, and every facet of the intersection of the three.
Lastly, it means thinking long-term, and managing assets so that this business-someday-will pass through my hands and into those of my daughter Chloe, who currently helms Cabot Dividend Investor. Because my mission is to ensure that this business lives to help investors long after I’m gone.
Which brings me back to you.
I’ve probably never met you.
It’s a rare event when our customers walk through our door-and our annual Cabot Investors Conference draws only a small fraction of our readers.
Yet you are in our thoughts every day as we work to make our advisories readable (at a minimum), enlightening (at best) and in general useful, so that you will stick with us long-term, as so many of our readers have.
One challenge to this, of course, is that every one of you is unique.
Some of you are beginners, looking for some guidance as you get into this pursuit (which may become an addiction).
Others of you are professionals, who’ve been investing for decades, and count on Cabot to deliver truly independent research.
Some of you love to trade the fastest-moving stocks and options, working to make a quick killing with your “fun money”-and if you lose it, well, it was still fun to try and you can always make more (or you already have plenty more).
Others of you are investing the money you need for retirement, and you need to make it grow and you can’t risk losing it!
And a whole lot of you are somewhere in the middle, moderately experienced, open to some risk, and smart enough to know that you can always learn more (like me taking a workshop on an HR system).
Also, speaking of variety, I love knowing that you come from an amazing 106 different countries!
But more important than what makes us different is what unites us, which is the never-ending pursuit of improvement in investing skills.
So, as we all pursue that goal, I want you to know that we are grateful for the opportunity to serve you all, and to continue this symbiotic relationship.
And as we head into what is likely to be the two quietest investing (partial) weeks of the year, I want to say thank you from all of us at Cabot, and happy holidays.
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10 Revolutionary Stocks
Last week I presented the first of this crop of revolutionary stocks, describing how Alibaba (BABA) has the potential to grow manyfold from here as it remains the largest retail force in China.
My second selection (these are presented in alphabetical order) is Centene, which is very different from Alibaba and yet also has great potential.
Centene is actually bigger than Alibaba by revenues ($15 billion vs. $10 billion), yet I’ll wager most investors have never heard of it-even though Alibaba is a Chinese company doing no business in the U.S. and Centene is an American company doing all its business in the U.S.
That business, in short, is providing healthcare services.
The majority of the firm’s business (77%) is providing these services to uninsured and under-insured individuals.
And this qualifies as a revolutionary business (at least in my mind), because Obamacare cements the major trend of governments, both Federal and state, assuming greater responsibility for the healthcare of Americans, and having greater control of the dollars used to pay for it. Thus any company that’s expert at getting these dollars is going to get more of them!
The programs in this category include Medicaid, State Children’s Health Insurance Program (SCHIP), Aged, Blind or Disabled (ABD), Foster Care and Long-Term Care (LTC), in addition to other state-sponsored programs and Medicare.
The other part of Centene’s business is Specialty Services, which provides behavioral healthcare, in-home services, vision coverage, telehealth services, pharmacy benefits management services and pharmacy services for complex diseases.
All these healthcare programs are growing, and as a major and early beneficiary of these programs, Centene is almost guaranteed to see continued growth for years to come.
Plus, because Centene serves roughly 3.7 million members in just 21 states, it has the potential to expand into 29 more states!
Revenue trends are already great.
Last year, Centene grew revenues 34% to $10.8 billion.
This year, they look likely to top $15 billion. In fact, revenue growth has been accelerating, with the last four quarters bringing growth of 29%, 37%, 54% and 56%.
And in 2015, management is aiming for more than $20 billion in revenue, up roughly 32% from 2014. It’s also looking for earnings of $5.05 to $5.35, up roughly 17% from this year.
Last but not least, let’s look at the chart.
CNC’s chart reflects the fact that all the above good news is not a secret. Even though the man on the street may not recognize the name Centene (in part because it operates through many subsidiaries), Wall Street knows the stock well, and it likes what it sees. That’s why the stock has been hitting new highs in recent weeks.
So, if you like the story, how do you play it?
First, you try to buy on a dip. Then, assuming you get a little profit under your belt, you average up over time.
Alternatively, if you think CNC is just too high now, you become a regular reader of Cabot Top Ten Trader, which is where CNC was first recommended by Mike Cintolo (right after its blowout third-quarter earnings report). Mike’s readers are sitting on a nice profit now, and when the stock cools off, Mike will probably tell them to cash out and move on the next hot stock.
In short, CNC can be both a trading stock and an investing stock. But you better decide what your goals are before you buy.
Yours in pursuit of wisdom and wealth,
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory
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