My Black Book
10 Stocks to Buy and Hold Forever
Buffalo Wild Wings (BWLD)
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Back in 1987, after my first full-time year of employment at Cabot, we bought a big black 3-ring binder published by Richard Russell that was full of charts, 11" x 17,” with one page for each year from 1930 through 1986.
In other words, 57 years of charts, showing the market’s daily movements.
Since then, we’ve added a new page to the book every year and updated the chart on a daily basis.
Now we’re working on the 85th year.
Here’s what 2014 looks like so far.
The black line is the S&P 500.
The green line is the Nasdaq Composite.
And the red line is the Advance-Decline line of the NYSE.
Originally, updating the book was my father’s job. After a while, I took over. And since 2007, it’s been updated-every day-by Mike Cintolo. When he’s out, I’m his backup.
Why do we do this, when it’s so easy to go on the Internet and get charts?
Two reasons:
First, because the physical act of putting pen and pencil to paper and tracing out what the market did before-day after day-gives a tactile sense of the market that pushing a button simply doesn’t provide, and understanding the market environment is important for all investors, especially growth investors, who often see their stocks heavily influenced by the market’s major trends.
Second, because the book provides a great place to make notes about major news items that may or may not affect the market.
Looking back at Richard Russell’s notes from the original pages, for example, I can see how the market behaved after events like the enacting of the Smoot-Hawley Tariff, Eisenhower’s heart attack, the Sputnik Scare and Watergate. More recently, in our own notes, we can see Gorbachev’s ouster, Clinton’s acquittal and the original U.S. invasion of Iraq (which kicked off a great market advance).
These notes in particular are a great reminder that there’s no knowing at the onset whether any news development might be good or bad. The market is not that simple.
As a result, we don’t spend much time thinking about the news. Instead, we look at the market itself, particularly the leading indexes, the advance-decline line, our Two-Second Indicator (the number of stocks hitting new lows) and the action of our stocks themselves, both those we own and those we’re watching carefully.
As a result, we win more than we lose. We often win big. We never lose big. So in the end we win.
If that’s your goal, we’re happy to help you attain it.
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So what does today’s chart tell us?
Clearly, it’s been a good year so far, though the correction from March into May was painful for growth investors.
Overall, I’ve been particularly struck by the breadth of the market advance. The fact that virtually all sectors have been participating is very bullish. Eventually, leadership will narrow, but the fact that it hasn’t yet tells us that there’s almost certainly more upside ahead.
Short-term, however, I do think risk is rather elevated, following the strength of the past few weeks, and thus I’d be leery of buying stocks that are extended.
However, I’d be inclined to treat any normal pullback as a buying opportunity, not only because the market’s main trend is up but also for two additional reasons.
First, sentiment is still not frothy-in part because of that spring correction-which tells me that there’s still buying power on the sidelines.
And second, I’m long-term bullish on stocks in general (as opposed to bonds) because of a theory-which I’ll explain someday-that baby-boomers will depend heavily on stock dividends (as opposed to bonds) for their retirement income.
So what should you buy now? And equally important, what should you sell?
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You should sell any stock that’s not doing what you hired it to do. If it hasn’t been able to perform in the very supportive environment of recent weeks, it’s unlikely to reward you when conditions get tougher. Cut it loose.
As for what to buy, one candidate is today’s stock to buy and hold forever.
10 Stocks to Buy and Hold Forever
The goal, remember, is not to identify stocks that can give you a decent long-term return, like Johnson & Johnson (JNJ) and DuPont (DD). You can hold those forever, but they won’t make you rich.
I want to identify the next Amazon (AMZN), the next Apple (AAPL), the next Google (GOOG) and the next Keurig Green Mountain (GMCR).
To recap, the key attributes I look for are these:
1. A product or service or business model that is revolutionary.
2. A mass market.
3. A company that’s still small enough to grow rapidly.
4. A company that is not respected-perhaps not even known-by the majority.
5. And last but not least, a stock that’s trending up, indicating that investors’ perceptions of the company are improving. This is important because perceptions are always at least as important as reality.
Which brings me to today’s stock, number eight in the Series, “Ten Stocks to Buy and Hold Forever.”
Buffalo Wild Wings (BWLD)
One of the simplest and most powerful business concepts is that of the cookie-cutter.
Applying mainly to retail businesses, it involves honing a successful formula and then opening up new stores again and again using the some successful formula.
The king of the cookie-cutter business is McDonald’s (MCD).
If you had invested $1,000 in MCD at the start of 1980, you’d have $93,457 now.
Other successful cookie-cutter fast food companies include:
YUM Brands (YUM), parent of Pizza Hut, Taco Bell and KFC.
Starbucks (SBUX) and Dunkin’ Brands (DNKN)-and I’m sure you can name others.
Today, Buffalo Wild Wings is on track to be another great long-term success story for three simple reasons: chicken wings, beer and sports on TV.
From its origins in Ohio (by a guy from Buffalo, New York and his friend), the chain has grown to more than 1,010 restaurants across all 50 states as well as Canada and Mexico.
Revenues have grown every year of the past decade (even through the tough times of 2008-2009) and earnings have done the same. For 2014, analysts are expecting earnings growth of 34% and for 2015, 18%.
And now the company is working to diversify!
The new restaurant model is called PizzaRev (short for Revolution). It’s a fast-casual interactive dining experience where customers choose their toppings for an artisanal pizza that is cooked in an open-flame stone-bed oven and ready in just three minutes.
The model was honed in California, and it’s now being rolled out in Minnesota.
Whether PizzaRev succeeds as well as the original concept or not, growth for the company is almost guaranteed.
Good management ensures that after-tax profit margins run between 5% and 8%.
And now is a pretty good time to get on board.
The long-term chart of BWLD is trending upward, which makes sense for a company that’s persistently growing both revenues and earnings. But as with any stock, there are fluctuations, and it’s best if you can buy at a low-risk entry point.
Happily, BWLD has just completed an eight-month basing phase, which means downside is limited and the upside holds great potential.
Back in early May, when this series of 10 stocks started, BWLD was trading at 140, in the low end of its range. In late June, as the market rallied, the stock broke out above resistance at 160. And now it’s sitting right there. If it succeeds at holding up here, that old resistance at 160 will turn into a base.
So, if you like the story, you could jump in now, thinking that support at 160 will hold. If it doesn’t hold-particularly if the broad market heads into another correction-you could see 150 or even 140.
But an even better choice today would be to take a no-risk subscription to Cabot Top Ten Trader, which is where Mike Cintolo originally recommended BWLD. That way, you’d get Mike’s very latest picks, as well as weekly updates, so you’re never left guessing about what to do with your stocks.
Yours in pursuit of wisdom and wealth,
Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory
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