Whenever you buy a stock you do so for a specific reason.
It might be because you like the dividend and you’re after income.
Or it could be because you like the company’s technology or the drug it’s developing, and you’re after growth.
But sometimes what you expect to happen doesn’t happen. And you’re glad it didn’t, because what does happen is sometimes better. As our old pal Nick Hubble recently found out…
You may recall a few weeks ago we sent you details to check out an outstanding report written by Money for Life Letter editor, Nick Hubble.
Nick had a specific investment in mind. It was a $7 billion opportunity for Aussie investors to profit from…milk.
That’s right, milk.
If you got in on Nick’s recommendation you should be sitting pretty right now. The stock is up over 60% since he made the tip seven months ago. Most of the gains have come in the past few weeks. Because of that, this week he’s given his readers detailed instructions on what to do next.
If you’re a Money for Life Letter subscriber and you missed Nick’s note we suggest you check your email or log in to the members’ only website.
If you’re wondering how you can make that much on milk in just seven months when the papers are constantly bleating about how dairy farms are doing it hard due to the supermarket milk price war, well, we’ve one word for you: China.
Profiting from China’s ‘White Market’
If you read Nick’s analysis you’ll know he had spotted an opportunity to profit from China’s ‘White Market’. That is, the illegal import of milk products into China from overseas.
After a series of scandals including contamination of powdered milk formula for babies, Chinese parents had lost all faith in domestic milk products. This led to a burgeoning ‘White Market’ where organised crime groups and even ordinary people smuggled milk products across the border from Hong Kong into Mainland China.
Nick learned of this situation and figured it represented a great opportunity for one small Aussie stock that had a chance to import milk products legally.
But then a few weeks ago, things got better for this Aussie stock. New Zealand company Fonterra revealed it had discovered a potential contamination problem at its manufacturing facility.
As you can imagine, that news didn’t go down well with Chinese consumers who had experienced dodgy milk product supplies in the past – hence the ‘White Market’ demand for imported milk products.
China put an immediate ban on the import of Fonterra’s milk products, which gave another boost to this small Aussie stock. But that wasn’t the end of the good news. Within a matter of weeks things got even better…
A Decade of Dividends in Seven Months
This brings us back to Plan B being better than Plan A.
When Nick tipped the stock it was all part of his ‘cash-out’ strategy. That is, backing stocks that pay a healthy dividend and have the potential to increase the dividend in the future.
Exploiting the Chinese milk products market was one way this Aussie company could have increased its revenue, profits and dividends.
It was a long-term strategy. And it was a great strategy if you’re saving for retirement.
However, sometimes you don’t have to wait 10 or 20 years to get the ‘cash-out’ from a company. If the company is that good there’s always the chance you’ll get to ‘cash-out’ of the company sooner.
One way of doing that is if the company you’ve invested in receives a takeover offer. That’s exactly what happened with Nick’s stock tip.
So instead of shareholders bagging a – say – 5% dividend per year over the next few years (plus the potential for capital growth), shareholders get to bank a 60% gain today. Or put another way, it’s like banking the next 12 years’ worth of dividends after just seven months.
Who can say no to that?
While you’d always prefer to hold on to a good company forever, there’s no harm in capitalising more than a decade of dividends in one hit and then using the proceeds to reinvest elsewhere.
After all, it’s not as though there aren’t other good quality dividend and growth stocks on the Australian market. And dare we say it, stocks that could also be ripe for a takeover.
The simple message for investors is this: if you buy into a good stock at a fair price, odds are good things will happen …if even they don’t happen in quite the way you expected.
Cheers,
Kris+
From the Port Phillip Publishing Library
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