Story Stocks Worth Telling

Did you hear the one about the lady who died while picking up a lucky penny? How about the one where a guy found the following week's winning lottery numbers scribbled in an investing guide at the local library?

You haven't -- but that doesn't mean that these things never happened. It's just that these stories never got around to being told. I mean, what's to say that these ironic anecdotes aren't true? If no one was around the unfortunate penny picker, a coroner would never be able to pin a heart attack on a copper Lincoln lying on the ground. It's also possible that a lottery winner wouldn't want to come clean with how he arrived at the lucky numbers for fear of litigation from wannabe scribblers.

Great stories exist only because they are told. It's as simple as that. With our relatively new Rule Breakers newsletter service, we seek out great companies with even greater stories to tell.

Storytellers vs. fortune-tellers
Have you heard the one about the leading online gaming company in the world's most populous nation? Rule Breakers subscribers learned all about Shanda Interactive (Nasdaq: SNDA  ) a few months back.

Never heard of Shanda? Well, gather around the crackling fire and allow me to leaf through this storybook. As China's leading Internet video game company, as many as two million of the country's citizens are simultaneously playing Shanda's games.

Its players can't afford much, yet Shanda still managed to produce net margins of a whopping 45%. Most of the country does not have access to the Internet from home, yet the company's revenues last year were up 116%. What happens when more Chinese citizens -- and I should point out that the country's massive population is nearly four times greater than that of the United States -- go online? What happens when the area's economy improves to the point where its customers can afford to pay more than they presently do for Shanda's popular games?

I'll tell you what happens -- a good story gets even better.

The $2.96 solution to picking great stocks
Sometimes the best investment stories are short and sweet, leaving you and your imagination to connect the dots. For instance, just recently XM Satellite Radio (Nasdaq: XMSR  ) announced that it was hiking the monthly fee on its digital radio service from $9.99 to $12.95.

It may seem inconsequential, right? What does a pricing strategy shift of less than $3 mean to you as an investor? Well, everything. At a time when you are seeing price wars drive down the going rates for things like airline tickets and DVD rentals -- gee, even Apple (Nasdaq: AAPL  ) iPods were marked down last month -- you have an industry where its leader has no problem announcing a nearly 30% increase.

XM and Sirius Satellite Radio (Nasdaq: SIRI  ) landed 2.6 million new subscribers last year to kick off 2005 with a collective 4.3 million avid radio listeners. These two companies make up the entire market. They bid for the two available broadcasting licenses, they spent billions to get their systems airborne, and that's it. You couldn't even begin to dig a deeper moat if you wanted to.

Sure, traditional radio isn't going away without a fight, but for these two companies -- offering well over 100 digital channels apiece -- what does it mean when they find themselves so far removed from the cost-cutting pressures you find much closer to terra firma to simply have the option to raise prices? I'll tell you what you have: another great story worth telling.

Dead stocks tell no tales
Our Rule Breakers newsletter service devours the kind of investing stories that awaken the hairs on the back of your neck. One of its first stock recommendations, a company by the name of Overstock.com (Nasdaq: OSTK  ) , has been a winning pick by doing something as simple as purchasing other companies' overstocks and clearance items.

In this case, the moat is deceptively narrow. Even leading online retailer Amazon.com (Nasdaq: AMZN  ) has its own outlet to move its inventory overruns. Yet while Amazon grew its sales by a respectable 31% last year, Overstock saw its top line soar by 107%.

And now Overstock is doing something that even Captain Ahab of Moby Dick fame would consider insane -- it's going after eBay (Nasdaq: EBAY  ) . Overstock has been successful in luring away some prolific auctioneers and it's also catching eBay at a time when the world's leading auction marketplace seems suddenly vulnerable.

Will Overstock make it work? Will our Rule Breakers subscribers come away from this chapter rich and enriched? Well, you know what the best part of buying into a story stock is? Turning the page.

Want more tales worth telling?

Longtime Fool contributor Rick Munarriz does not own shares in any of the companies in this story.The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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