In the spirit of today's All-Star Game, our own all-star analysts offer a glimpse at their best-performing stocks over the past few years.
Best small cap, value, and turnaround
In fall 2002, the market hatedCryptoLogic (Nasdaq: CRYP ) . U.S. credit card companies were barring online wagering with their cards, the U.S. government was threatening online gaming prohibition (a repeatedly failed threat over the previous seven years), and the tech bubble was in the final throes of meltdown. But despite its abysmal stock price, CryptoLogic had lots of cash and no debt, and it was hosing out free cash flow.
More importantly, the company had new management with a clear strategy for growing the business. At the time, 40% of revenues came from non-U.S. venues, many where online gaming was legal, and even moving toward full regulation. Eschewing U.S. expansion, CryptoLogic instead sought to partner with large, land-based, international names to help leverage its brand equity online.
While the exact future was unknowable, you could reasonably predict success. In October 2002, the stock fell to $3.12. When I bought CryptoLogic shares back then, at an average price of $3.35 per stub, I was purchasing the company for the value of the cash on its books (a cash hoard that was growing quarterly). Even if the worst happened (like the successful prohibition of U.S. online gaming) and 60% of its business evaporated overnight, you were still getting the business model, the software code, the customer relationships, and the plants in the atrium for free.
CryptoLogic, now a Motley Fool Hidden Gems recommendation, has been a seven-bagger for me in fewer than four years. Today, it has more than $8 per share in cash and growing; I believe it's cheap on any valuation basis you wish to consider. The price has been depressed lately, probably on worries over new U.S. government attempts at prohibition and renewal talks with a key customer (closing in November). But you'll be paid a 2% dividend while you wait. In other words, while it might not get to claim the "turnaround" title once again, I believe CryptoLogic still carries the twin mantles of best small cap and best value.
Best Rule Breaker
None. I lack the Rule Breaker gene. I look at such companies, see little cash flow today (but rivers of cash promised somewhere over the murky horizon), and edge away, muttering, "Crazy kids!" Yet many people do well with this investment style, and I wish them the very best. Investing is about staying in one's circle of competence, and Rule Breakers ain't mine.
Best blue chip
Most Americans don't know that you get more oil from us Canucks than you do from Saudi Arabia. And how do we get it to you? Pipelines! That's where Enbridge (NYSE: ENB ) comes in, transporting crude oil, natural gas, natural gas liquids, and other hydrocarbons. It also has investments in other energy-transportation businesses and provides gas utility distribution services in Ontario, Quebec, New Brunswick, and New York state.
Sounds positively somnolent, doesn't it? Yet the same type of assets, famously cast off by Enron and the late Ken Lay (and picked up by Kinder Morgan (NYSE: KMP ) for a song), throw off scads of cash regardless of the price of the commodity flowing through them. The stock's delivered 15% annual returns, before dividends, for the past decade. And those dividends, paid for more than 50 years, have been themselves rising at a rate of 10% per annum.
Best mutual fund
I own none. But I do own a wonderful fund company, CI Financial Income Fund, which trades on the Toronto Stock Exchange. Ranked by Morningstar Canada as having the highest number of five-star funds, the company features management with a significant ownership stake focused on cash generation. It's been a three-bagger for me in three years, all while paying a steadily rising dividend. The company recently converted to an income trust (meaning that corporate taxes are negligible, since it pays out most of its cash profits to be taxed in unitholders' hands), and it sports a 7% yield, which I plow back into a dividend reinvestment plan.
Best growth stock
I believe that GPS-heavyweight Garmin (Nasdaq: GRMN ) , a Motley Fool Stock Advisor pick, may be the perfect combination of growth, shareholder-aligned management, and high-quality earnings. The company is a cash machine (though not a cheap one), has recently doubled its dividend, and sported cash and investments of $764 million on its last balance sheet, with no debt. It has the best-regarded products in the exploding personal navigation device (PND) space, dominates the market for aviation GPS, and produces a myriad of other GPS-related products for marine and outdoor applications. There are so many great aspects about this company that, unless shares get ridiculously overvalued, I'm happy to tuck Garmin's shares away for the long term.
The Hidden Gems portfolio is currently beating the market by 20 percentage points. Click here to see Tom Gardner's and Bill Mann's best small-cap recommendations.
Fool contributor Jim Gillies owns shares of CryptoLogic, Enbridge, CI Investments, and Garmin.The Motley Fool has a disclosure policy.