The First Stock for a Young Investor's IRA is the unlikely first addition to the Pencils IRA Project, a new real-money IRA portfolio managed by a 21 year old.

Mar 1, 2014 at 12:00PM

The Pencils IRA Project is dedicated to building a portfolio of promising businesses that can be followed and replicated by both young and new IRA investors. Each holding of the Pencils IRA Project must meet the five pillars of a "megagrower" business -- purpose-driven business, innovative products, visionary leadership, increasing cash flow production, and strong company culture -- with significant potential to create stakeholder value and substantially beat the market over the long haul. 

It's never too early to open an IRA and begin investing for retirement. Any money young adults add to an IRA should be money that will not be needed until retirement age. (Withdrawing funds from an IRA before hitting retirement will, in many cases, lead to penalties.) This is all the more reason for young investors -- who likely have between 30 and 40 years before they hit retirement age -- to maintain a long-term horizon when making investment decisions in the present day. While there are certain circumstances where Roth IRA funds can be withdrawn before retirement without consequences, it is best to treat and IRA as a very long-term-focused investment vehicle.

Last month I added (NASDAQ:STMP), a leading provider of online postage and shipping solutions, to my watchlist. This month, is the first addition to my Roth IRA as part of the Pencils IRA Project.

Before the inevitable question arises -- "Is there even a need for postage anymore?" -- there is a critical point to keep in mind.

Online shopping is becoming the new norm. Consider that Amazon Marketplace --'s (NASDAQ:AMZN) marketplace for more than 2 million independent sellers -- saw record sales in 2013:

In 2013, Marketplace Sellers on Amazon sold more than a billion units worldwide, cumulatively worth tens of billions of dollars. The Amazon Marketplace, which consists of more than 2 million Marketplace Sellers of all sizes worldwide, experienced record growth during the busy holiday selling season. On Cyber Monday, more than 13 million units were ordered worldwide from Marketplace Sellers on Amazon, growing the total units ordered by over 50 percent year-over-year. 

Increased online shopping necessarily makes for increased shipping (and postage) needs. is poised to benefit from the ongoing expansion of Amazon Marketplace, given its partnership with Amazon allowing Marketplace sellers to print postage through's Marketplace shipping label service.

In short, I believe stands to capitalize on the trend toward online retail in the coming years. It also offers a disruptive alternative to traditional postage solutions providers like Pitney Bowes (NYSE:PBI), offering customized shipping-software solutions for a growing number of businesses engaged in e-commerce.

With that said, how does stack up with our five "megagrower" pillars?


Purpose-driven business
Helping the world deliver packages isn't the flashiest of endeavors. -- recently ranked by Forbes as one of America's Best Small Companies -- is committed to helping business owners and shippers save time and money by offering convenient and cost-effective postage, shipping, and online checkout solutions.

Part of what separates a purpose-driven business is the answer to the question: "What makes employees excited to work for this company?" As you will see in the leadership and company culture pillars, stacks up well in this department. 

Innovative products and services is one of only three vendors approved by the United States Postal Service to sell postage and shipping solutions online. Not only does this provide a sizable moat for, but the company is currently in the process of scaling its business to meet the needs of higher-volume enterprises that are increasingly utilizing online shipping services. Additionally, continues to invest in strategic partnerships with Amazon and eBay to seamlessly integrate with e-commerce platforms and online shopping carts.

This January the company was assigned a patent -- four years in the making -- "for the computerized generation and printing of a U.S. Postal Service Shipping Label over the Internet." After many years of negotiating with the U.S. Postal Service, is also now able to sell first-class stamps for $0.48 versus the $0.49 charged by the U.S. Postal Service, marking "the first time in history that such a single piece letter discount has ever been made available by the postal service." In short, provides an innovative service that saves both the U.S. government and a wide array of enterprises time and money.

It benefits the little guy, too:'s cumulative monthly subscriber count stands at 468,000, up from 385,000 in 2011 and 435,000 in 2012. 

Visionary, experienced, involved leadership has a slate of executive leaders who have been with the company since 1999 and are still 45 years old or younger. This management team has proven their commitment to the business, sticking with through the bursting of the tech bubble and the 2008 economic meltdown. In addition,'s independent directors own 14% of all shares outstanding, which indicates confidence backed by large personal investments. This, in turn, gives me confidence that management's actions are aligned with the interests of long-term shareholders.

"We believe we have a very attractive and sustainable business model and are looking forward to delivering results over the next five years," says co-president and CFO Kyle Huebner. Experienced, innovative, and forward-thinking management -- that's a winning combination, if you ask me. 

Consistently increasing cash-flow production
In the first three quarters of 2013 produced $33.2 million in operating cash flow, surpassing the $27.3 million in operating cash flow generated by the business in 2012. This is a marked improvement from the $4.8 million in operating cash flow generated in 2010. 

This stellar cash-flow production has led to a sturdy balance sheet with $87.21 million in cash and no debt. To top it off, in 2013 sales grew by 11% and earnings grew 35% to $38.9 million. With strong margins, continued cash-flow production, and a rock-solid balance sheet, is in excellent financial condition to capitalize on future opportunities.

While the company may report relatively slower results in 2014 due to shifts within the business, I believe management is making the proper adjustments -- and has the financial backing -- to ensure continues to grow over the long haul.

Strong company culture prides itself on an entrepreneurial culture where employee creativity is encouraged. On, employees give the company a rating of 3.5 out of five, and CEO Ken McBride has an impressive 88% employee approval rating.. The Better Business Bureau gives an "A+" grade based on factors like the company's low volume of customer complaints. 

Foolish bottom line
I opened my position in prior to the company's mid-February earnings release, when the stock was trading at a P/E of 18. Despite beating analysts earnings estimates, the stock was hit by as much as 11% following the company's earnings report. Today the stock trades at a P/E of 15, which strikes me as an exceptional value for a quality business capitalizing on the growing online retail market.

With a market cap of less than $600 million, will probably be one of the smaller (and lesser-known) businesses added to the Pencils IRA Project. Despite the market's negative reaction to the company's latest earnings report, I remain confident that will continue to generate value for its numerous stakeholders and offer market-beating returns in the coming years.

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David Kretzmann owns shares of and You can follow David on his Foolish discussion board, Pencils Palace, on CAPS, or on Twitter @David_KretzmannThe Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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