My Secret to Finding Multibaggers

Getting to know companies over the years can be an invaluable asset for beating the market... If you have a long memory of a company and know its history and management inside and out, it's a lot easier to swoop in when a great buying opportunity presents itself. Companies that are otherwise unimpaired see their […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily Weekend] My Secret to Finding Multibaggers By Berna Barshay --------------------------------------------------------------- [The 'inflation proof' move no one's talking about]( Savvy Americans have found the perfect way to beat inflation. It's easy and [can even be done online for just $4](. --------------------------------------------------------------- Getting to know companies over the years can be an invaluable asset for beating the market... If you have a long memory of a company and know its history and management inside and out, it's a lot easier to swoop in when a great buying opportunity presents itself. Companies that are otherwise unimpaired see their stocks stumble all the time because of relatively minor events, like lowering guidance or an executive stepping down. Other times, a business may be getting appreciably better or worse in terms of its future prospects. In both instances, having historical context can be crucial in identifying great value. I've been watching many companies for more than two decades now. One company familiar to regular readers of Empire Financial Daily is L Brands, which formerly traded under the ticker LB. Back in August, the company changed its []corporate name to Bath & Body Works and its stock ticker to BBWI – reflecting the personal fragrance products retail chain. The company is also the former parent of lingerie chain Victoria's Secret (VSCO), which it spun off in August at the same time as the corporate name change. As I explained in the May 22, 2020 Empire Financial Daily, Victoria's Secret was once considered one of the best specialty retail businesses in the world. It had a dominant market share within lingerie in the U.S., near-universal brand recognition, and exceptional, industry-leading margins thanks to both its scale and its pricing power. After many years at the top of its industry, Victoria's Secret started to stumble. It saw revenue growth slow down considerably in 2016 and eventually turn negative in 2017. Operating margins began to drop. As company performance declined and the stock fell, many investors tried to justify the fall from grace. Some attributed the chain's troubles to a fashion trend toward "bralettes"... a kind of wireless bra that was taking a bite out of the market for the sexy push-ups that Victoria's Secret was famous for. But I could tell that something bigger was going on... Something was off in the company's decision-making. In a move I still don't understand, Victoria's Secret voluntarily exited its swimwear business in 2016. Victoria's Secret had been one of the top destinations for regular women seeking affordable, full-coverage bikini tops. Women who visited primarily for swimwear every year would also end up buying underwear, sleepwear, or other products. Swimwear was a gateway to the brand for many customers. I never heard a good defense of this decision-making from the company... and five years later, Victoria's Secret re-entered the category. Other signs of poor judgment continued, including a lack of diversity in the models selected for advertisements. The millennial and Gen Z customers that the chain sought expected – and demanded – a more inclusive vision of beauty for race and size. Management didn't recognize that social and cultural change was happening... or if it did, it refused to acknowledge it. By the end of 2018, Victoria's Secret was widely lambasted in the press for its out-of-touch marketing. Its overtly sexy imagery and narrow definition of beauty had once felt merely anachronistic, but suddenly it was regarded as offensive as the #MeToo movement took hold. The company's missteps at that point were widely understood. And as a result, LB shares fell nearly 75%, from a high of more than $100 in 2015 to around $25 by the end of 2018... L Brands was a classic value trap all the way down... People saw the historical margins and thought that problems were temporary. Investors expected a reversion to the mean – that the company would go back to performing as it had for so long. They figured bralettes would go out of style, and push-ups would come back. The next marketing campaign or set of products would turn it all around. My male colleagues (who I assume never wore a bra in their lives) would tell me a life-changing one was just around the corner... because that's what the company told them. I remember at one point the declining same-store sales were attributed to dressing rooms that were in desperate need of a refresh, which Victoria's Secret was in the process of doing. At that time, a good male friend and analyst sent me into a store to check out one of the new, renovated dressing rooms. While he waited on a rainy street corner for me, I checked out the fitting room. Spoiler: The new wallpaper wasn't going to fix the company's problems. Back when Victoria's Secret was putting up peak operating results, it had an exceptional handle on the era's zeitgeist. I remembered those years well. It knew what women wanted, aspired to be, and believed in. Over time, women's aspirations changed... but the company didn't. --------------------------------------------------------------- Recommended Link: [The best 'portfolio fixer' stock Berna has ever found]( Berna Barshay's shocking takeaway from this year's Berkshire meeting isn't for the faint of heart. After listening to hundreds of people tell her their fears of losing it all in this market, she's found an under-the-radar company that's about to disrupt an entire $300 billion industry. She expects it to rise as much as 300% over the next three years. [Click here for the details](. --------------------------------------------------------------- By 2019, the source of []Victoria's Secret's woes was generally well-understood... But at that point, most of Wall Street had left it for dead. After recognizing that something was broken and avoiding the value trap all the way down, I started getting super excited about the stock as having a deep value in 2019. I knew that L Brands' other asset – Bath & Body Works – was a true gem... And as LB shares continued to sink deeper into the $20s, the value ascribed to Victoria's Secret started to approach $0 rapidly. Some people thought that was correct and that the chain was beyond repair. But having covered the company for 20 years and been a customer at different points for 30 years, I felt Victoria's Secret wasn't a totally lost cause. Bras are one of the toughest apparel categories to size and source properly, and Victoria's Secret still had huge scale and experience advantages. Due to its longtime position as a top retailer, the chain also generally had excellent locations within malls. The continued strong performance of Bath & Body Works and the sheer number of stores between the two concepts gave L Brands a lot of sway with landlords. I also believed in the power of nostalgia in branding... I had seen brands like Tapestry's (TPR) Coach, Puma (PUM.DE), and Kering's (KER.PA) Gucci rise from the ashes of near obscurity to periods of high growth and category dominance with a change of marketing message or design team. With brands, legacy matters. My qualitative judgment told me that properly managed, Victoria's Secret was salvageable. My quantitative analysis told me that at points, LB shares implied the lingerie chain was worth nothing – or worse, had negative value, despite nearly $7 billion in annual sales. The pandemic actually handed L Brands a huge win... Just prior to the outbreak, L Brands agreed to sell 55% of Victoria's Secret to private equity firm Sycamore Partners in a deal that valued the company at around $1 billion. I thought it was the steal of the century. Then the pandemic struck, and Sycamore walked away from the deal in May. It was an awful time for retail, not to mention the rest of the world. But nothing had permanently changed at L Brands... And in fact, for the first time, I was seeing a shift in its marketing to be more inclusive and welcoming to diverse customers. At this point, I highlighted L Brands in Empire Financial Daily as a good buy for long-term investors tolerant of a little volatility. Having followed the company for so long, I could see subtle "green shoots" at Victoria's Secret. And I understood what a great business Bath & Body Works is... and how little investors were paying for Victoria's Secret when stripping the value of its sister chain out of LB shares, which were trading for just $15 at the time. Let's fast-forward a couple of quarters... As expected, Bath & Body Works minted money during the pandemic selling soaps and hand sanitizers... and Victoria's Secret finally turned things around. Product and marketing improvements led to "less bad" sales declines while operating margins have exploded. As I mentioned earlier, back in August, L Brands changed its corporate name to Bath & Body Works and spun off Victoria's Secret in order to create better transparency and unlock value at the two chains. Today, Victoria's Secret is worth more than $3.5 billion... 3 times what Sycamore balked at paying. Going into the spin-off, LB shares climbed nearly 360% since the first time I told readers about them... Avoiding the value trap on the way down was hard. Staring into the abyss at the bottom was harder. But having followed the company for more than two decades, I had the context and confidence to avoid losses... and jump in when the stock was ready to rip higher. And right now, I'm incredibly bullish on another company that I've been following for years... I even recently traveled across the country to get the full story and talk to management. This a tiny company positioned for massive growth over the next 24 months, and it... - Has proprietary technology that even Amazon (AMZN) couldn't replicate (and if it tried, it would take it 10 years), - Operates in an underfollowed niche area that has quietly outpaced the sector it is revolutionizing by 25 times over the past three years, and... - Is on the verge of going mainstream – which could hand early investors at least a double – maybe even a quadruple – over the next couple of years. In a brand-new presentation, I share all the details... [Watch it here](. Regards, Berna Barshay May 28, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. 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