Stock Of The Month. Onveston Report #2

A Micro-Cap Company That Gets The Job Done

Dear investor,

first of all, congratulation to all readers who read the Onveston Report #1.

The stock is currently up around +11% since I published my analysis a few weeks ago. (A few weeks are still early to judge an investment thesis, but nevertheless it’s good to see a stock being up).

If you’re a new reader you can download the whole analysis of this “Regulatory Goldmine” that’s one of Wall Street most solid performers here:

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Below are the first pages of today’s report with a link to the whole file at the end:

The journey of investing usually has two stages. It starts with learning from publicly available information and ends with unlearning much of it. Over time, you realize that true knowledge comes from experience, while everything else is just surface-level information.

The same goes for advice on company size. A common myth I had to let go of was that company size significantly impacts investment risk. People often say smaller companies are "riskier," but size actually has little to do with risk. The real danger in investing comes from ignoring fundamentals and overpaying.

Another misconception is that fast-growing companies are only in the tech sector. In reality, any industry can have high-growth companies. What really matters are the fundamental results and what you’re getting on a per-share basis, regardless of the sector.

This is essentially Warren Buffett's message, though many investors seem to overlook it. It’s ironic that he’s the most quoted investor worldwide, yet his straightforward advice is often ignored.

A prime example of this principle is Warren Buffett's purchase of Coca-Cola shares in the 1980s when the company began experiencing tremendous growth under the leadership of this guy:

Roberto Goizueta.

Under Goizueta's leadership, Coca-Cola's market value skyrocketed from $4 billion in 1981 to $145 billion in 1997 - a 36-fold increase in just 16 years, with a Compound Annual Growth Rate (CAGR) of 25%.

How could a beverage producer grow that fast? The answer lies in a simple concept: Free Cash Flow.

Roberto Goizueta fundamentally altered Coca-Cola's business model. Prior to his leadership, Coca-Cola owned both the syrup and the bottling facilities. Operating these bottling facilities led to high expenses. As a business owner, minimizing such expenses is crucial. Coca-Cola had to pay for factory workers, delivery drivers, trucks, raw materials, and more.

Goizueta's strategy was ingenious. He sold all the beverage factories, retaining only the syrup production. He then negotiated a shrewd deal: the new bottling facility owners were required to purchase Coca-Cola syrup to use the Coca-Cola name.

Thus, Coca-Cola KO 0.00%↑ transitioned from a capital-intensive firm to one with just a few factories producing syrup. The result was a leaner, more agile company poised for profitability and market dominance.

This case demonstrates that a company's sector is less crucial than often portrayed. Whether it's a tech stock or a beverage stock, what truly matters is how effectively management executes operations and how much free cash flow a company generates. Wall Street eventually recognizes these fundamentals, and the share price follows, as seen by Coca-Cola's performance following Buffett's investment.

Consider, for example, a current investment opportunity: a micro-cap company in the food production industry. This firm has been operating successfully in its niche for decades, completely unnoticed by the broader market - a potential hidden gem for savvy investors.

Not only does this company produce products with the highest satisfaction rate among its clients, it does so with very little capital requirement - which means more money for its shareholders.

Until the next issue. 👋

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Disclaimer: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from my research. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.