I often encourage investors to seek out smaller, underfollowed companies. It’s hard to get an edge on Wall Street when you’re buying a stock that’s followed by 30 or more analysts. In fact, there are tons of high-quality companies that are completely ignored by Wall Street.
If you do a little homework, you can be as well-informed as anyone on a small stock. Most investors never think of calling the company and asking questions. Well, you’re the owner! You’re certainly allowed. A lot of times, good companies are more than happy to discuss their business. (How often does someone call you asking about your job?)
One company that I’ve followed for many years is Hawkins (NASDAQ:HWKN). Talk about unloved! No one follows Hawkins. Yes, this has been an outstanding stock for decades! (By the way, I’m not recommending the stock. I’m just using them as an example.)
Hawkins is a specialty chemical company based in Minnesota. If you’re in Fargo and you need a shipment of sodium hydroxide, these are the boys to call. They’ve been around for many years and the company is largely in family hands. They do what they do, and they do it well.
The odd thing about Hawkins is that they used to split their stock almost every year, but by small amount. You’d get a 10%, 15% or 20% stock dividend each year. As a result, the nominal share and dividend price didn’t move much, but the stock really did very well.
Here’s a long at Hawkins’ long-term performance. That flat line is the S&P 500, meaning HAWK beat the market so badly that you can barely see it in comparison. For comparison, the blue line is Coca-Cola (NYSE:KO). (Click to enlarge)
The historical oreturn could be even better since Hawkins has probably averaged a higher dividend yield over time. Yet, no one has heard of them.
Owning a stock like Hawkins is about as close as you can get to being in private equity while still actually owning a publicly traded stock. Shares of Hawkins trade very little and the volatility is exceptionally low. To many investors, that’s a bad thing. Not to me.