There has never been a person on the planet who has reached the level of wealth that John D. Rockefeller achieved in his lifetime. At one time, his inflation adjusted net worth was $366 billion dollars. For perspective, that's more than five times Warren Buffet's wealth.
Mr. Rockefeller didn't start out with a small fortune, though. He actually had rather modest beginnings.
And while some might question some of the practices Mr. Rockefeller employed when he was head of the Standard Oil Trust, he employed a great investing principle. Instead of taking the risk of actually searching for oil, he found a point in the oil value chain that controlled distribution and provided stable cash flows -- refining and marketing -- and turned it into the integrated oil titan whose components eventually become the major American corporations Exxonmobil (NYSE: XOM), Chevron (NYSE: CVX), and BP (NYSE: BP).
In the spirit of John Rockefeller's early investing prowess, we asked a few of our contributors the following question: If John Rockefeller were to start from scratch today, what company do you think would be on his buy list? The catch, though, was that they couldn't use one of the companies listed above. Here's what they had to say.
Matt DiLallo: John Rockefeller got started with refining, but he became a very wealthy man by creating the world's first integrated oil monopoly. He was actually a bit too good at building an energy behemoth, as the Supreme Court eventually broke up his Standard Oil Company. If the famed industrialist were alive today, I'd be willing to bet he'd be drawn to another company with monopoly-like tendencies: Kinder Morgan (NYSE:KMI).
What made Rockefeller a really rich man was the fact that he could see kerosene and gasoline rising in importance in America. He then pounced on this megatrend by forming a company to refine petroleum, and then set out on a quest to grow his company by acquiring competitors so that it could be in the position to capture more of the profits from this megatrend.
In a way, that's exactly what Kinder Morgan is doing with natural gas. It has built or acquired a vast network of gas-related infrastructure to position the company to profit from the megatrend of surging gas demand.
While Kinder Morgan doesn't control that natural gas market -- although a third of the country's gas volumes flow through its pipelines -- it still has monopoly-like characteristics. This is due to the fact that pipelines are regulated, which means that not anyone can build a competing pipeline right next to Kinder Morgan's. Because of this, its customers typically sign up for long-term contracts, which locks in Kinder Morgan's cash flow.
These long-term contracts drive very strong fee-based cash flow into Kinder Morgan's coffers. The company then sends a bulk of that cash flow to investors via a generous dividend that's expected to grow by 10% annually through the end of the decade.
It's a dividend that would be music to Rockefeller's ears given the fact that he famously said: "Do you know the only thing that gives me pleasure? It's to see my dividends coming in." Suffice it to say, Kinder Morgan would be a stock that Rockefeller would likely own if he were alive today.
Asit Sharma: One constant in John D. Rockefeller's business career was the use of leverage to expand his operations as rapidly as possible. In his mid-20s, after buying out his partners in the oil refining firm of Andrews, Clark & Company, Rockefeller undertook significant debt to grow the business. Within a few short years, the successor company, Rockefeller, Andrews & Flagler, emerged as the most dominant oil refiner in the world. This process would be repeated with the formation and growth of the Standard Oil Company.
It's possible that, if Rockefeller were alive today, he would note many similarities between the oil refining business of the late 19th and early 20th centuries and the solar industry of today. And he'd probably approve of the creative financing techniques of Solar City Corporation (NASDAQ:SCTY.DL).
SolarCity led the country in solar installations last year with more than 98,000 installations, and bills itself as the largest employer in the solar industry. Like most of its peers, SolarCity raises funds through tax-advantaged partnerships; yet it's also developed unique financing mechanisms to enable it to scale the hurdle of high upfront installation costs, and outpace its rivals in the process.
SCTY has introduced asset-based financing to the solar industry, a balance-sheet friendly structure in which receivables from customers' long-term energy contracts are used as collateral for borrowing. In addition, the company recently launched a $1 billion fund backed by Credit Suisse to ramp up its commercial installations, which until now have taken a back seat to residential deployments. Solar City has even developed "Solar Bonds," which allow individuals to participate in the growth of the industry as lenders.
If you want to conquer a nascent industry, you need lots of ready money. SolarCity has grasped that creative financing will allow it to channel a bit of John D. Rockefeller in its quest to remain at the forefront of solar expansion.
Tyler Crowe: I agree that pipelines would probably be high on Rockefeller's list of investing musts because of the burgeoning supply of oil and gas coming from the United States today. However, one component that seems to be forgotten when talking about oil and gas is natural gas liquids, and boy does the U.S. have more than it needs. While crude oil and natural gas exports have been severely restricted from leaving its soil, the U.S. has vaulted to the position of the world's leading exporter of natural gas liquids in just a few years. Of all the companies out there, no one has control over the natural gas liquids space more than Enterprise Products Partners (NYSE:EPD).
Want a near monopolistic control of a market? Enterprise's NGL pipelines are connected to every ethylene-processing facility in the U.S. -- ethylene is a product derived from NGLs. Its export capacity for NGLs gives it prominent port access in Texas, where almost all hydrocarbon-related exports take place.
What's more important than the fact that it has a near 100% market share is that it can convert those operations into cash. That cash can be distributed to investors, as well as grow the business. Unlike many of its peers that give away all of the available cash in the form of distributions, Enterprise has consistently retained cash to reinvest in the business and reduce its dependence on capital raises to grow its NGL empire.
There are not many opportunities out there today better suited for a Rockefeller-type starter investment than Enterprise Products Partners.