One of the most important investment lessons I've been taught, is to think of investing as a marathon, not a sprint. Too many investors are busy finding a get rich quick scheme. To this day, I haven't seen one which has worked as well as traditional buy and hold investing.
If you're serious about investing for your future, it's important to limit speculative punts and focus on finding growth stories which have reputable and profit-making businesses. In the past few months, I have kept a close eye on three companies which fit that description and, I like them so much, I recently hit the buy button.
Collins Foods Ltd (ASX: CKF) is one company I watched throughout 2013 as it drifted lower and lower for no particular reason. Collins Foods owns and operates KFC and Sizzler restaurants. In November, the company announced an acquisition of Competitive Foods – the franchisee of 44 KFC restaurants in Western Australia and Northern Territory. The transaction revived the share price and it has since climbed 25%.
The acquisition will be immediately earnings accretive and was 100% debt funded. However the acquisition was not the reason I bought shares. Unlike other small-caps which have strong brand recognition, Collin Foods is currently trading on modest earnings multiples, has a great dividend and enormous long-term organic and acquisitive growth potential. In the short term a recent revamp of KFC brands coupled with a slow, but sure, return of consumer confidence will provide tailwinds. It has also strategically positioned itself in a number of up-and-coming hospitality chains including – most recently – Snag Stand.
Newsat Limited (ASX: NWT) could be perceived as a more speculative investment given the huge amount of anticipation around its future growth. Newsat is Australia's only pure play satellite company. It has the right to several orbital slots which will allow coverage to 75% of the globe. Newsat's unique positioning in Perth and Adelaide coupled with its ambition to provide coverage right around the world has enabled it to secure hundreds of millions of dollars of long-term contracts with government and big business.
Recently, the company announced the completion of its Jabiru-2 satellite which is in storage, with the goal of being launched later this year. It is expected Jabiru-1 will be ready for a 2015 launch. Jabiru-1 – is Australia's first commercial satellite which provides high-powered Ka-band coverage to the Middle East, Asia and Africa – it has already secured US$644 million of pre-launch contracts. It is expected it will bring in US$3 billion of revenues over 15 years at 82.5% margins. Given Newsat's current market capital of only $278 million, I believe it has a bigger and brighter long-term future ahead of it.
Donaco International Ltd (ASX: DNA) is the latest addition to my long-term portfolio. It has recently undertaken a number of strategic investments which will be both short and long-term earnings accretive. Donaco's primary business is casino and hotel operations in Lao Cai, Vietnam. It is strategically located on the doorstep to China and will benefit from a rise of the middle class in Asian countries.
The Lao Cai International Hotel is the first fully-licensed gaming business in Vietnam. Renovations from a 3-star 34-room hotel, to a brand new resort complex with 428 hotel rooms are nearly complete, with a soft opening tipped for May 2014. It recently upped its interest from 75% ownership to 95% when it acquired an additional 20% from the government. In 2013, Donaco had an operating margin of 70.4%, net profit of $7 million, net profit margin of 44.8%, return on capital of 15% and return on equity of 14.5%. In my opinion, those are fantastic numbers for a small growth story.
Foolish takeaway
When I first started investing I hadn't prepared myself for the realities of the market. There is no get rich quick scheme just sensible long-term trends which benefit investors who buy the best stocks available. To leverage wisdom from a famous fund manager, Peter Lynch: "If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored."
