Germany's World Cup win caps a 14-year odyssey that began with an abysmal performance at the Euro 2000 soccer tournament that, in turn, provoked an overhaul of their soccer development program. The overhaul paid off and investors can learn from their experience. Notably, the Germans realized the new player development system was going to be a long-term investment and their biggest need, particularly for younger players, was basic skill development.
So how can investors learn from German soccer?
The obvious lesson is the long haul view of the German soccer program. As much as Germany would have liked a world champion team in 2001, they also knew that it's an unrealistic goal to create great players or teams overnight. So it is with investing. Dreams of overnight riches usually turn out badly.
Consider the following chart. Depending on the age you start saving for retirement, assuming a 6% return on your investment, this is how much you would have to save each month to reach $1 million by age 65.
Image courtesy of Business Insider/Andy Kiersz
This doesn't answer how one comes up with $361 a month at age 20, but it does demonstrate the power of early saving with a long-term horizon.
Fundamentals are important
Just as Germany focused on basic soccer skills at an early age, so investors should focus on a business' fundamentals before investing. It's easy to get suckered into a company that's paying a big dividend, or has had a great year to date run in the market. If you have a long-term perspective, you will want to see consistent returns. This means looking at financial fundamentals (debt load, earnings growth, and valuation) and business fundamentals (what does it do, how is it growing, who are its competitors). Here are three examples of companies with solid fundamentals in the US energy industry.
Pick and shovel play in offshore drilling
Fellow Fool Tyler Crowe bluntly stated, "Wall Street must be stupid if National Oilwell Varco (NOV 0.61%) is this cheap." Indeed. A quick look at some financial basics shows a company growing its earnings by 17% year over year, yet sells at a price to earnings growth of 1.1. The company enjoys a debt-to-equity ratio of 13.82 and, at last check, actually has more cash than debt. These are good signs.
The business is supplying stuff to offshore drilling companies. Simply stated, as long as there is offshore drilling, there will be a need for National Oilwell products and services. National Oilwell supplies everything from drill bits to engineering and project management services. Many consider National Oilwell to be the dominant player in this business.
Long term, offshore drilling looks to grow. From the Gulf of Mexico to the shores of Angola, Israel, and East Africa, expect to see increased drilling activity, and expect National Oilwell Varco to be there.
Focusing on domestic opportunities
After becoming its own company in 2012, ConocoPhillips (COP 0.74%) rewarded investors with growing dividends and capital gains. And it looks like these trends will continue in the future. Earnings have generally met or exceeded projections. The company sits on a cash pile of $7.73 billion with debt of $21 billion -- though the debt-to-equity ratio is a bit high at 39.55.
The business is oil and natural gas exploration and production. The company has divested itself of over $12 billion in assets, many overseas in politically risky countries such as Libya and Kazakhstan. The money gained is being spent on North American energy plays such as the Permian Basin and the Alberta oil sands. During its latest investor presentation, Chairman and CEO Ryan Lance pointed out the company is growing by developing these assets organically and focusing on value as well as growth. In fact, the company aims for double-digit returns annually through 2017.
Conoco counterpart
The other half of ConocoPhillips was Phillips 66 (PSX 1.13%), which has rewarded investors slightly better than ConocoPhillips. The financial fundamentals look a bit better, too. It has a better year-over-year earnings growth rate. Phillips 66 has less cash, $5.33 billion, but far less debt, $6.22 billion, than Conoco Phillips. Phillips 66's debt-to-equity ratio is a more reasonable 28.48.
The business is oil refining, petrochemicals, and midstream operations. Unlike competitors such as Valero, Phillips 66 has diversified into higher margin petrochemicals, reducing its exposure to the more volatile refining business. Phillips is also expanding its midstream operations organically to help deliver inexpensive US crude oil to its refineries on the East and West coasts. Phillips 66 also will be exporting energy such as propane. This diversity and focus on using inexpensive US produced oil and other petroleum feedstocks should underpin years of growth.
Final Foolish thoughts
How many Americans have enough patience to wait 14 years before their sports team wins the equivalent of the World Cup? Or a well-funded retirement? Not many. If you do, and you focus on fundamentally good companies, your retirement should truly be "World Cup" years. Of the options discussed in this article I'd start with National Oilwell Varco for its core business and superior financial fundamentals. I believe this company will be growing for years.
