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The Grass is Getting Greener

How investors decide where to invest.
Charles Lewis Sizemore, CFA is a frequent guest on CNBC, Bloomberg TV, Fox Business News and Straight Talk Money Radio, has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post and is a frequent contributor to Forbes, GuruFocus, MarketWatch and InvestorPlace.com. His academic and real-life experience has given him a unique approach to investing, combining his insights into global macro trends with in-depth investment research, and he has developed a reputation for taking complex issues and making them understandable. Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.
Charles Lewis Sizemore, CFA is a frequent guest on CNBC, Bloomberg TV, Fox Business News and Straight Talk Money Radio, has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post and is a frequent contributor to Forbes, GuruFocus, MarketWatch and InvestorPlace.com. His academic and real-life experience has given him a unique approach to investing, combining his insights into global macro trends with in-depth investment research, and he has developed a reputation for taking complex issues and making them understandable. Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

When I read a draft of Rodney’s feature story for the June issue of Boom & Bust, I joked in our investment committee meeting that our portfolio recommendations for the month would be Nintendo and Cheetos.

You see, this month’s issue is about the need for weed. We’re taking stock of the winners and losers of the growing (pun intended) marijuana industry.

Among other things, Rodney points out that large-scale agribusiness hasn’t gotten into the industry yet. Because, legally, it’s still really messy at the federal level.

That leaves smaller farmers and amateurs to fill the void in our growing pot pie.

So, while investing in the legacy video game company or munchies-makers might prove to be perfectly reasonable investments and hit on the stereotypes of certain pot-smokers, I ended up going in a different direction.

It’s a recommendation that jives with the grassroots growth in weed and a broader theme that crosses state, and generational, lines – a high-profile supplier of home gardening products.

Stop snickering.

Backyards are being converted into miniature marijuana farms. Hydroponics and cheap energy can turn garages across America into experimental farms.

As Rodney details, demand for legal marijuana will continue to rise, which should keep prices high and encourage a steady influx of new suppliers to try their luck as legal drug lords.

All of that is interesting, but still, it’s not enough for me to justify buying the stock of a gardening company.

Thankfully, there’s a much bigger trend here: the marriage and family formation of the Millennials.

The largest cohort of the Millennials – born in the late 1980s and early 1990s – is now pushing 30. And believe it or not, they’re actually getting haircuts and real jobs… starting families and buying homes.

Not coincidentally, housing starts are also showing signs of life. They’re still at barely half their pre-crisis peak levels, but they’ve trended higher since 2012.

Longer term, the U.S. housing market terrifies me.

But until we get the housing crash that Harry’s forecast, I expect housing starts to continue to trend higher, and a larger percentage of those homes to be modest starter homes built for young Millennial families.

Younger homebuyers may not have the remodeling and improvement budgets of older and higher-income homeowners. But they do take the appearance of their homes seriously.

Landscaping and gardening (hey! I said stop snickering) are a big part of that. I see it every time a Millennial replaces an original homeowner in my Dallas neighborhood.

And we’ve found a company in that field we’re comfortable investing in, regardless of the story.

It’s wildly profitable and consistent.

Since 2009, it’s generated an average return on equity of nearly 30%. In the meltdown of 2008, it fell just $ 0.19 per share, and it sports a modest dividend yield.

Charles Sizemore
Portfolio Manager, Boom & Bust Investor