"Have you ever heard of the wealth effect? Basically, it's the idea that you will spend more because you feel richer. You feel richer because you think home prices are up or because your stock portfolio has increased in value". (Jim Wang at Bargaineering.com, April 21, 2010)
Well it's 2013 and "the wealth effect" is beginning all over again. Home prices have bottomed and in many areas are starting to go higher. The stock market as measured by the Dow Jones Industrial Average is back to levels not seen since 2007.
Recently I interviewed Frank Curzio who writes The Small Stock Specialist and Phase 1 Investor for Stansberry Investment Research. I wanted to know if the "wealth effect" was really impacting the stock market all the way down to small cap and micro-cap stocks.
Mr. Curzio confirmed that indeed it has. He began by asking me if my readers wished they could have invested in companies like Franco Nevada Gold (FNV) and RoyalGold (RGLD) years ago when they were newly established and yet barely discovered. I said, "they sure do".
He then told me about a "wealth effect" opportunity that is similar and available today called Altius Minerals (ATUSF.PK). This prospect and early stage royalty streaming company has, under the leadership of CEO Brian Dalton, evolved "... from a penny stock to a company with a market cap approaching $358 million."
Altius started as a company that focused on the mining and resources sector in eastern Canada. It owns various exploration stage royalty interests in properties prospective for nickel-copper cobalt, iron ore, uranium, gold, and other base metals; and holds active mineral exploration agreements targeting various mineral commodities.
The company, which was founded in 1997 and is headquartered in St. Johns, Canada, also has investments in junior exploration and development stage companies. It also has a subsidiary called Cranberry Capital whose CEO is the legendary Paul van Eeden.
As Altius' website describes this remarkable aspect, "In late 2010 Altius announced that it has entered into an agreement with Paul van Eeden of Cranberry Capital Inc. ("Cranberry") to establish a new company that will invest principally in early stage mineral exploration businesses.
"Altius contributed $25 million in initial capital to the new company and Cranberry contributed $3 million while Paul van Eeden will become the President and CEO of the new company. Altius has a long history with Paul in his roles as a former stock broker and supporter of Altius, and more recently in an advisory consultancy capacity."
Altius believes that "... an excellent opportunity exists for capital growth through patient investment in early stage companies and that Paul's background, industry contacts and track record make him ideally suited to identify such investments. The structure of the new company that sees Paul van Eeden and Altius invest together is particularly encouraging."
As Mr. Curzio explained. Altius has total cash (most-recent-quarter) of almost $158 million, little if any debt, and royalty streaming projects that will be generating many millions of dollars more over the next 3 years. It has "... low overhead, massive cash flow and outstanding officers".
The "wealth effect" that's beginning to take off in North America will help shape its destiny as investors focus their wealth on this smartly positioned company and its subsidiaries. It's just one of the stocks that can power higher as the new "wealth effect" takes hold again.
Another little known, under-followed "cash cow" stock that Mr. Curzio has written about recently is Leggett & Platt (LEG). In a recent edition of DailyWealth in an article deliciously titled, "The Greatest Dividend Payments You've Never Heard Of" he introduced us to this global maker of various engineered components and products.
Mr. Curzio wrote on Feb.6th "Today, LEG ... is one of the largest manufacturers of mattress bedsprings, bed frames, and pocketed coils in the world. It also produces tons of steel each year, used to make specialty wire found in chairs, racks (you can find in almost every retail store), and fitting rooms.
"Turning to the financials, LEG trades at 14 times [forward] earnings, a big discount to most dividend-paying stocks. LEG is also expected to grow its earnings by 12% annually over the next two years. That's more than 50% faster than the average S&P 500 company."
Since writing his article LEG's shares have moved nearly 2.6% higher. LEG pays close to a 4% dividend. "That's almost double the rate of the average S&P 500 company. It's also been raising its annual dividend for 40 years," Mr. Curzio reminded readers.
Below is a 2-year chart along with the Accumulation-Distribution indicator showing that it has suddenly soared higher along with the share's price.
These are just two examples of stocks well-suited for the new "wealth effect" that has begun. I recently wrote an article that highlights 2 more stocks that have or are about to release quarterly earnings and are examples of emerging "wealth effect" companies.
In fact one, Coinstar (CSTR) announced its quarterly earnings after the market closed on Feb.7th. It disappointed on its annual revenue guidance, forecasting a range from $2.375 billion to $2.555 billion, and core profits of $4.91 to $5.51 a share. Analysts had been projecting $2.51 billion and $5.15 a share.
The bigger disappointment was on the company's first quarter revenue and EPS estimates. CSTR is guiding for revenue of $568 million to $593 million and core EPS of 77-92 cents. Analysts consensus estimates had been $624.2 million and $1.21 a share, a big difference.
The good news is that the stock dropped over 8% in after hours trading. This offers a better possible entry level for new investors or a chance to "double down" on those who already own shares of CSTR.
Due diligence, patience and evaluating the impact of the wealth effect on the economy as a whole should help guide our investment choices. Having the additional benefit of great investment research like the kind that Frank Curzio offers can sharpen both our focus and our results.