Up 32% This Year, This Health Stock Is Set To Really Take Off

[John Thomas]

When he buys a stock, Warren Buffett places more emphasis on one factor above almost any other.

Since 1986 he has mentioned this single trait more than 20 times in his annual shareholder letters. He calls it "essential for sustained success."

However, you won't find it listed on a company's balance sheet. Its value doesn't rise and fall with the market. And even if a company reports great earnings, the worth of this one advantage still can't be calculated.

But that doesn't keep it from being a company's most valuable possession.

Take the nasty bear market of 2008 and 2009. From its peak to trough, the S&P lost more than 55%. No investment completely avoided the downfall.

Well, almost no investment. Of the 500 stocks in the S&P, only nine made money during that period.

Of those nine stocks, six of them (two-thirds) had this advantage.

But this advantage also helps these stocks beat the market in uptrends, too. After all, Buffett has made billions thanks to companies with this trait.

So what single advantage can capture the attention of Warren Buffett... help a stock beat the market in an uptrend... and help it fall less in a downtrend?

That advantage is a term originally popularized by Buffett himself -- an economic moat.

As Buffett puts it...

"A truly great business must have an enduring "moat" that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business "castle" that is earning high returns.

"Therefore a formidable barrier such as a company's being the low-cost producer or possessing a powerful world-wide brand is essential for sustained success. Business history is filled with "Roman Candles," companies whose moats proved illusory and were soon crossed."
- Warren Buffett, 2007 Berkshire Hathaway Shareholder Letter

[John Thomas]

361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing
November 18, 2013

Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA

[John Thomas]

Every home has at least one. From the White House to a shotgun shack in Appalachia, this product is notable for its widespread use across every demographic.

Virtually all of us spend nearly a third of our lives using this product, which commands a wide range of prices -- from less than $100 for basic versions to well over $10,000 for custom-built ones. In addition, this product is so commonplace you might not give it a second thought after the purchasing decision. U.S. manufacturers produce about 35 million units a year, and the industry's revenues neared $6 billion in 2009.

If you haven't guessed it yet, I am referring to the lowly mattress. I recently had a great experience with a particular brand over the last several years, but right now I would avoid or even short the stock.

When my wife and I were newlyweds, one of the most important purchases for our new household was a mattress. I'm a restless sleeper, and my wife sleeps so silently and still that sometimes I have to check to be sure she's still breathing. My rolling about at night disturbs my wife when we sleep on spring-based mattress, so much so that we often sleep in separate beds when in hotels.

The memory of a TV commercial from the late 1990s -- in which a person is jumping on a bed but not spilling a wine glass sitting on the same bed -- sent me looking for this mattress brand. Considering the hyperbole used in commercials, I wasn't expecting the mattress to live up to the TV ad -- but I was willing to give it a try.

Talk about being pleasantly surprised! Not only was this mattress exceedingly comfortable, I could roll around with abandon and my wife would barely feel the movement on the other side of the bed. It truly is the rare product that performs exactly as advertised. It's been three years since our purchase, and this mattress has held up as the most comfortable and practical mattress either of us have ever used.

Based on this positive experience, I took a close look at the company as a potential investment. The mattress is called Tempurpedic, and the manufacturer is Tempur Sealy International (NYSE: TPX).

The world's largest bedding manufacturer, Tempur Sealy was formed by the merger of Tempur-Pedic International and Sealy Corp. this year . The Lexington, Ky.-based company's brands include Sealy, Tempur-Pedic, Posturepedic and Stearns & Foster. The Tempur-Pedic mattress was the result of 10 years of research, originally for NASA, culminating in the founding of the U.S. Tempur business in 1992. The Sealy part of the company was founded in 1881.

[John Thomas]

The ?Furious Five? 3D stocks have gone absolutely ballistic this fall. Below, the unbelievable performance for each over the last 23 days:

[John Thomas]

You don?t get the good without the bad in this world. There are no free lunches and everything costs something.

Elon Musk is getting an education on that very subject as we speak. The brilliant inventor and entrepreneur was given a full year in the spotlight as his Tesla Model S became the darling launch of Wall Street. His halo shone so brightly it even illuminated the stock price of Solar City, another company he?s leading. Each appearance he made was accompanied by a built-in cheering section on the networks.

Every corporate milestone was greeted with fanfare and accompanied by massive upside for the shares of both stocks.

He could do no wrong and his every utterance became chyron?d on-screen, complete with the ?BREAKING? and ?EXCLUSIVE? headlines.
Billions upon billions in shareholder value had been created as the real-life Tony Stark become a media star.

But then Tesla hit a rough patch. A few of the cars went on fire and the media was quick to seize upon this new, less flattering angle of the story.

And now Elon believes the coverage of him and his Tesla company is ?disproportionate.?

Unfortunately that?s how it works. That disproportionate coverage enabled the man?s company to get a lot done and to grow up really quickly. It generated awareness for the cars and legitimacy for the business model in a way that actual advertising never could. But there?s a price.

Musk has been named the CEO of the year and with good reason ? he?s a visionary with the capability to actually execute and build. He?s probably changing the world.

But the media, like the market, is a two-way street. First they love you, then they hate you, then they fall in love with you all over again when you start to win once more.

[John Thomas]

Are the goldbugs all fleeing for crypto currencies?

Hilarious chart posted by Tyler yesterday, I had to nick it:

[John Thomas]

When I wrote early this year about the coming Internet boom, my purpose was to highlight dot-com 2.0 stocks and companies that would benefit from an increase in domain names and advertising.

I recommended four names: Verisign (Nasdaq: VRSN), Google (Nasdaq: GOOG), Marchex (Nasdaq: MCHX) and ValueClick (Nasdaq: VCLK) as companies ready to ring the cash register. Since that article was published in January, all but ValueClick have easily beaten the market, with 40% to 50% gains in Google and Verisign and a whopping 120% gain by Marchex.

But there is another facet of the Internet boom coming -- and no one is talking about it. When it happens, I think it will be one of those things that people look back on and ask: "In hindsight, it was so obvious. Why did I not invest?"



This next big wave is something that is already affecting the way people use the Internet and bringing about massive changes in the software and hardware space. It plays on the same emotions that made YouTube and Facebook (Nasdaq: FB) household names.