"They thought we had overpaid for him," Bob Wood, president of Nike's Golf division, told TIME magazine last April when referring to his company's 1996, $40 million endorsement deal with Tiger Woods.
"They" had good reason to think that way. Twelve years ago, Tiger hadn't yet teed off as a pro. Paying $40 million for an unproven duffer had to be unthinkable at a time when PGA Tour titan Tom Lehman led the pack with just $1.78 million in winnings.
You know what's happened in the 12 years since. Tiger has earned more than $100 million in tournament winnings -- more than $9 million per year -- and $669 million in endorsements. He's on track to become the first billion-dollar athlete in history.
And, with his endorsement, Nike Golf is blossoming. In fiscal year 2007, the division produced more than $650 million in revenue versus just $120 million 11 years ago. That's a 16.6% annualized return -- and there isn't an investor alive who wouldn't be grateful to earn that.
The story behind the story
Should we all go out and bet on the unproven? Woods, after all, is a once-in-a-generation athlete. Did Nike really know how great Tiger would become? Of course not.
But CEO Phil Knight had seen bets like this pay off before. Michael Jordan, he of the dynastic Chicago Bulls NBA franchise and the megapopular "Air Jordan" shoe, signed a $2.5 million five-year deal with Nike in 1984.
Twenty-three years later, the division built around Jordan produced $800 million in revenue. That's a 28.5% annualized return.
See the pattern? Greatness is often worth paying for, especially if you spot it early. With Woods, who won an unprecedented three consecutive U.S. amateur titles, evidence pointed to a budding superstar.
Mr. Market, meet Tiger Woods
So it is, too, in the stock market. Just ask Fool co-founder David Gardner. He often uses the story of Tiger Woods to explain his growth investing style.
Why? Like Nike's talent scouts, David is looking for stocks that, while appearing expensive and perhaps even speculative, show potential through six attributes he says make a Rule Breaker:
- Top dog and first mover in an important, emerging industry. Disruptive technologies are everywhere. Think of Intuitive Surgical's (Nasdaq: ISRG ) robot surgeons, which save lives by performing sensitive procedures with unheard-of precision.
- Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors. Dozens of companies fit the bill here, but I'm particularly fond of leaders like TASER (Nasdaq: TASR ) that face inept competitors.
- Strong past price appreciation. Excellent growth stocks often go on being excellent growth stocks. That's why First Solar (Nasdaq: FSLR ) was a seven-bagger in 2007.
- Good management and smart backing. David looks not just for managers who execute well but for those who define new markets, such as Oracle (Nasdaq: ORCL ) founder Larry Ellison.
- Strong consumer appeal. Firms that create life-changing or lifestyle-enhancing products often deliver excellent returns. There's no better example than Apple (Nasdaq: AAPL ) , whose iTunes service and iPod player established the standard in digital entertainment.
- You must find documented proof that it is overvalued according to the financial media. Name a growth stock -- Salesforce.com (NYSE: CRM ) , for example -- and, chances are, someone has called it overvalued.
On safari, searching for the next Tiger
No conservative investor would ever have assigned Tiger Woods an "intrinsic value" of $40 million before his debut as a pro in 1996 or proclaimed Michael Jordan worth $2.5 million as a rookie in 1984. And yet each was worth more than Nike paid. Much more.
So were six-bagger Intuitive Surgical and several others in David's Rule Breakers portfolio. Nine stocks in all have more than doubled since the debut of the service. To discover their identities and see everything David and his team are recommending now, accept a 30-day free pass to Rule Breakers. There's no obligation to subscribe.
Fool.com and Rule Breakers contributor Tim Beyers owned shares of Oracle at the time of publication. Find Tim's portfolio here and his latest blog commentary here. Intuitive Surgical and TASER are Rule Breakers recommendation. Apple is a Stock Advisor selection. The Motley Fool's disclosure policy is still an undrafted free agent.