5 Ways To Win From Money Losers

5 ways to win at losing money
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Forbes – “Always” is always a dangerous word in investing, but here’s a good time to use it: Always own some stocks of profitless good firms. Some are turnarounds. Others fund growth through legally deductible futuristic expenses that mask profitability while avoiding taxes. Both needlessly confuse and scare off most investors, who are guided solely, mostly or too much by earnings.

As a result, these under-appreciated firms get bid up as they otherwise progress in the real-world marketplace. When I had nothing and had nothing to lose, these were the only kind I bought. While you don’t want profitless bad companies, of course, the profitless good firm is a beautiful thing to behold.

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Case in point: I last recommended Amazon in January 2013 at $258. This July, on the 24th Forbes Cruise for Investors, I was asked how it can be worth more than $200 billion yet never earn material profits? First, if it did, it would pay material taxes. Why are taxes good? Second, it still self-funds strong sales growth with an okay balance sheet. Third, it’s at only 2.5 times revenue, cheap for any real growth stock.

But the killer? More and more it simply dominates retailing. Whatever it is, if it isn’t on Amazon you probably don’t need it (except securities–and probably even them soon). Don’t believe me? Try searching for bizarre esoterica you expect only in a niche specialty store far, far away. Profits later; dominance now! Amazon is an “old tech” name yet merely 21 years young, barely drinking age. As such, this huge category killer fits perfectly into my vision of “old tech” leading this bull market’s golden years.

So do I just have my head in the clouds? Well, surely for Salesforce.com. It’s a perfect pure play on the cloud, providing enterprise cloud-computing solutions for business. I first recommended it at $33 in April 2011. It has compounded more than 20% a year since while never really earning any money. That should continue as its customer relationship management (CRM) technology and “software as a service” keep gaining credence. For those value-prone: Its price-to-revenue ratio is now far less than what it was when I recommended it in 2011.

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So if Amazon has everything you need, why am I for the first time recommending Target, America’s third-largest discount retailer? After all, it is losing money and up against Wal-Mart; discount margins are thin in the best of times. Am I just nuts? Well, I’m crazy for solid turnarounds. Yes, Amazon is changing everything, but as behaviorists teach us, people are slow to learn, and Target didn’t get to be number three in a tough turf for no reason. It has great locations and great merchandising. It has been trimming and toughening. And I think it will earn $5 billion in two years. By then the stock should be up 50%. You get a 2.5% dividend yield while waiting.

Another real money loser I like lots is Ireland-based drug giant Allergan. I recommended it just three months ago at $283, urging you to buy before its name changed from Actavis–but I’m doubling up here now as Allergan. It’s incorrectly viewed by institutions–too much owned by passive funds and not enough by traditional active ones (which, as they gain confidence in it, should bid up the price). And where it is owned by active institutions it is mostly as an alternative to generic drug firms. My bet is before this bull market ends it’s treated more like mainstream proprietary druggies and is nicely higher.

I’m also recommending the U.K.’s Barclays for the first time ever. It hasn’t made any reasonable money in years. Stagnant sales! Flat stock–just where it was five years ago, half of ten years ago! And it’s been accused of darned near everything shy of being an actual terrorist cell. I like that. Expectations are negligible–just as the company now actually, by my reckoning, rights its ship. Once results are in, it will be too late.

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Money manager Ken Fisher’s latest book is Beat The Crowd (Wiley, 2015). Visit his home page at www.forbes.com/fisher

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