Hello, Reader.
Every successful strategy has a “special sauce” – a unique edge that competitors can’t easily replicate.
The Walt Disney Co. (DIS) turns stories into experiences people remember. Trader Joe’s, the grocery store with a cult following, finds unusual products and gives them distinctive branding. And McDonald’s Corp. (MCD) even has literal “special sauce” for its Big Macs.
In investing, Warren Buffett’s formula is almost comically simple: buy great businesses at reasonable prices and be patient.
Likewise, my approach has its own “special sauce”: betting on turnarounds and overlooked opportunities.
Many of my biggest winners over time came out of the gates down 20%, 30%, even 40%… but those are also the same investments that led to 500% and 1,000%+ gains.
The key is knowing whether a stock is falling because the business is struggling or for reasons unrelated to its fundamentals. If the business remains strong, a sharp drop can create an opportunity rather than a warning sign.
In fact, I specifically seek out stocks that exhibit what I call the “down a lot, up a little” pattern. It’s when the prices of a well-established company fall sharply for reasons beyond its control (down a lot), but then begin a modest recovery (up a little).
These turnaround stocks can lead to significant profits.
That’s the beauty of “down a lot, up a little”: It gives investors a way to create their own special sauce. Find a good company that’s been knocked down, make sure the fundamentals are still intact, and get positioned before the market catches on.
In today’s Smart Money, I’ll share this strategy in action – including an opportunity that you can get in on right now.
Then, I’ll show you how I’ve turned this special sauce into a repeatable system for finding the next potential 10X winner.
The Insurer Everyone Feared – and Why I Bought It
If a company’s recent legacy is not one of growth, investors often overlook signs of a recovery. This was the case with Wall Street and Humana Inc. (HUM).
I recommended the health insurance firm back in 2000 after prices had fallen by two-thirds. The company was hit with a perfect storm of Medicare reimbursement challenges from the Balanced Budget Act of 1997 and a terminated merger with UnitedHealth Group Inc. (UNH).
These events proved temporary, and shares of Humana rebounded threefold over the next several years.
Investors were given another chance to buy in during the depths of the 2007-’08 financial crisis.
At the time, Wall Street considered every insurance stock “uninvestable.” Ambac… Lincoln National Corp. (LNC)… American International Group Inc. (AIG). No one knew which company would go under next because most insurance firms were not required to disclose what they owned.
But Humana was different. Health insurers renegotiate policies annually, so Humana’s assets were short term, matching its short-term liabilities.
In fact, Humana’s assets in 2007 had a duration of just 2.6 years – well below the seven years typically of other insurers.
Even better, almost all of Humana’s assets were valued at current market prices. That made its balance sheet look worse than it really was – creating a cheaper entry point for investors while actually reducing the risk of a blowup.
And so, when the time came for Humana to recover, it did so with force: up 100% after a year… 250% after two years… 300% after four years…
By the time 2014 had rolled around, Humana shares had returned a stunning 3,591% from my original recommendation.
As a result, this trade became one of my more than 40 trades that achieved a 10X return.
Now, I want to share another one that might soon join that group. But first, here’s the “special sauce” setup…
Why Japan Is My Next 10X Hunting Ground
As a macro investor, I make decisions based on broad trends, which often include international stocks. Many people find foreign stocks intimidating if they’re not used to them, but I can say I’ve been making these calls for 30 years and have seen some incredible success.
And I’m already seeing it with Japan.
Japan wasn’t always an attractive investment. Years of deflation encouraged the nation’s households to hoard cash (because cash’s purchasing power rose over time), starving domestic firms of capital for growth.
In short, the country’s “stock” was down… a lot.
For decades, Japan’s keiretsu system of tangled corporate ownership protected struggling “zombie” companies, weakened accountability, and slowed the economy. Even a 2015 economic overhaul failed to solve the underlying problems. Meanwhile, quantitative easing weakened the yen, wiping out much of the stock market’s gains for U.S. investors.
Now, the backdrop is changing. Japanese companies are buying back more of their own shares… the government is encouraging individual investors to buy stocks through its revamped NISA program… and Japan is emerging as a leader in AI adoption.
In other words, Japan’s “stock” is now up a little. And that’s turning into an investment bonanza, particularly among younger investors with no memory of Japan’s 1992 bubble burst.
Japanese companies also increased spending on plant and equipment by 1.6% year over year in April-June, signaling stronger business confidence.
So, due to valuation and structural reform, a new cycle of Japanese outperformance is underway. Here’s how to apply the “special sauce” to this opportunity…
How to Spot the Next 10X Turnaround
Japan is “down a lot, up a little.” That’s great. But narrowing down a country’s worth of opportunity is like finding a needle in a haystack.
That’s where my proprietary stock picking system, Apogee, comes in.
Using computer analysis, Apogee employs a set of indicators to find potential 10X opportunities. I call them my 10X Pattern. The core idea is simple:
- The stock is “down a lot” and then “up a little.” (You already know this.)
- The stock is cheap based on sales.
When these conditions are met, my system generates a rare buy signal. That’s when some of the biggest gains can begin.
And earlier this year, Apogee alerted me to a Japanese automation company on the comeback trail.It is a diversified industrial technology company headquartered in Kyoto.
And the company is emerging from a cyclical trough into what appears to be a more durable structural upswing. Over the next couple of years, I expect the stock to outperform the S&P 500 index by a wide margin. As an aside, I expect the stock to be an outperformer in its home market in Japan as well.
I worked with Apogee to recommend this turnaround play to my The Speculator subscribers back in February, and I believe the stock is still a buy at current levels. You can learn more about this company by joining me at The Speculator here.
But this is just one example of what Apogee can uncover. In my free presentation, I explain everything you need to know about the system and demonstrate it in real time. You’ll watch Apogee sorting through a universe of 14,000 stocks to pinpoint the very few with 10X potential right now.
Plus, I reveal my system’s first five “official” recommendations… including their names and ticker symbols.
Click here to learn how to make this “special sauce” your own – and find the overlooked stocks that could become tomorrow’s biggest winners.
Regards,
Eric Fry
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