Better than Berkshire?
By Paul Price of Market Shadows
Valmont Industries could be the greatest growth stock you've never heard of.
Is it better than Berkshire Hathaway? The numbers say yes.
You would think that a stock that turned $10,000 into $64,415 over the most recent decade would attract a lot of ink. In reality, very few investors even have Valmont Industries (VMI) on their radar screens.
Valmont is too small and illiquid to interest many mutual fund managers. It is not held widely enough for many financial journalists to waste time on. Most readers now click only on stories concerning stocks they already own.
The $3.3 billion (2013 revenues) company had less than 27 million shares outstanding at the end of last year, giving it a market cap of about $4 billion. Average trading volume is only about 270,000 a day. Yahoo Finance shows only five analysts with current year estimates. Just four were willing to venture guesses for 2015. Value Line’s April 18, 2014 write up calls for $10.50 in EPS this year rising to $11.40 next year. Both numbers would represent all-time highs.
Valmont gave shareholders a volatile ride over the decade but performed well in everything that counted in terms of value creation. Earnings per share swelled by almost 900%. Dividends more than tripled and could easily have shown even gaudier growth. Valmont’s payout ratio (the dividends paid to net profits ratio) fell from 29.2% to 9.5% over the past decade as management reinvested more of the company’s profits into organic growth, a strategy that paid off brilliantly.
Money not paid out in cash is not taxable along the way. Capital gains from reinvestment will only be subject to lower LTCG (long term capital gain) rates, and then only when sold.
Note: Valmont is held in our Market Shadows' Virtual Value Portfolio.
Those who say that ‘buy and hold’ no longer makes sense might get an argument from long-term owners of Valmont.
Valmont’s holders earned almost five times the total return of the better-known and much revered Berkshire Hathaway’s class B (BRK.B) shares over the same period. Both stocks showed remarkably similar patterns in terms of market action over the years.
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