If you're like me, you're sick to death of people hyping American Vanguard (AMEX: AVD). Television, Internet, cocktail parties -- you can't escape the thousands of people who have ridden American Vanguard up more than 3,000% in value in the past six years.
What? You mean you're blissfully unaware of American Vanguard and its vise grip on several agricultural businesses, including fire blight protection and snail and slug control? If I hear one more person tell me how dumb I was to have missed the rapid growth in deer repellent, I think I'm going to scream.
As an aside -- what do you suppose would happen if you put deer repellent and deer attractor in the same place?
Anatomy of a sleepy winner
No, American Vanguard is not a "hot" stock. But it is proof positive that you don't need to find a laser beam technology to generate massive investment gains. It is the 19th-best-performing stock over the past decade, but it's been in business, doing essentially the same thing, since 1969. It's an even better performer than truly hot stocks like 75th-place Biogen Idec (Nasdaq: BIIB), 117th-place Starbucks (Nasdaq: SBUX), 152nd-place BJ Services (NYSE: BJS), 165th-place Pulte Homes (NYSE: PHM), and 199th-place Valero (NYSE: VLO). All have generated massive returns for investors over the past decade, yet invisible American Vanguard did better.
That's not to say it has been a smooth ride. The stock market moves in funny ways -- particularly when it comes to obscure small caps. If you'd bought American Vanguard at its 1988 initial public offering (IPO) and held it through the end of 1999, you would have lost money. Very frustrating.
But never forget that a stock and a company are sometimes very different. During this period of stock stagnation, American Vanguard's sales doubled, free cash flow skyrocketed, and net income increased smartly. Heck, they even decreased share count. No one noticed.
Who could blame an investor for getting impatient? I mean, a decade or two of underperformance is tough to bounce back from, right? But the business, unglamorous as it was, continued to grow. The combination of business improvements and a static share price acted like a coiled spring. Since 1999, American Vanguard's shares have increased 30 times in value, and while the company has performed well, the stock's performance has been incredible.
Leave the stock, take the business
How would you feel if you had given up on the stock just before this incredible rise? Someone did just that. That's why when Fool co-founder Tom Gardner and I are analyzing small caps for Motley Fool Hidden Gems subscribers, we focus more on the business and less on the stock. The former provides the engine for long-term returns, the latter little more than the launching point.
We missed American Vanguard (not to say that this company is finished with its staggering growth) but that's OK -- there are no called strikes in investing. Tom and I comb through the world's best small-cap companies each month looking for opportunities just like American Vanguard. They may not all be 30-baggers, but we're more than happy to be patient with companies that show the kind of trajectory American Vanguard did: a healthy, growing business -- and a totally neglected stock.
For a totally free 30-day trial to Hidden Gems -- giving you access to Bill and Tom's two newest small-cap stock picks, which are released today at 12 noon EST -- click here.
Bill Mann owns none of the companies mentioned in this article. Biogen Idec is a Motley Fool Stock Advisor recommendation. This message is sponsored by the Fool's disclosure policy.
Terms & Conditions
RSS Headlines
Fool UK