How to Spot a Huge Growth Opportunity

It’s 1983. A young man named Howard is attending a trade show in Italy.

Howard can’t remember what happened at the event. But he fondly remembers the walks he took. On his route, he passed several espresso bars.

Each had opera in the background, while the barista greeted every customer as if they knew them personally.

In each shop I visited I began to see the same people and interactions, and it dawned on me that what these coffee bars had created, aside from the romance and theatre of coffee, was a morning ritual and a sense of community,’ Howard later said.

He came away from that trip absolutely energised with culture. As it happens, Howard was a manager of a coffee bar in the US. When he told his boss what he had seen in Italy, the man was unimpressed.

This is America. No one is going to go for that, Howard’s boss told him.

Howard never gave up on his vision — a chain of coffee bars that would recreate the community and atmosphere he saw in Italy.

So when his boss put the business up for sale, Howard jumped at the chance. He scraped up everything he had and raised money from others to buy the coffee business for $3.8 million.

Today, that business is worth $68.5 billion. I guess you could say Howard Schultz’s investment paid off.

China helps Starbucks rise 14,000%

Starbucks Corporation [NASDAQ:SBUX] is one of the most successful firms in one of the toughest industries. The restaurant business is a gruelling slug. What differentiates one restaurant from the next is a quality that’s incredibly hard to create.

Ambiance, milieu, culture, whatever you want to call it — Howard Schultz has built it at Starbucks. An Italian friend of mine said even in Italy, her home country, her cousin keeps Starbucks coffee cups on their self as a prized possession.

For a business like Starbucks, growth comes from expansion. More stores equal more dollars. In the early days, Starbucks did extremely well in the United States.

Today, they have more than 13,000 stores across 52 states. Somewhere along the way Starbucks hit a saturation point in the US, meaning there are fewer options when trying to roll out new stores.

The same thing happened to Chains like McDonalds and Walmart. There was a point where there just weren’t any more options for new stores. And instead of growing in the mid to high double digits, these stocks plodded along.

That’s why, early on, Howard’s plan wasn’t to just roll out Starbucks across the US. He wanted to do the same thing in Southeast Asia, India and China.

The most successful venture has been the latter. 

Starbucks opened their first store in China in 1999. Since that time, Howard has managed to open about 138 stores per year.

I’m sure many people had the same reaction Howard’s boss had when he said he wanted to break into China. This coffee, it’s not what the Chinese want. They’re more into teas and such.

Yet today, Starbucks rakes in US$3.24 billion from China and Asia Pacific. It’s why so many other businesses are following the Starbucks model.

Apple, Inc. [NASDAQ:AAPL], REA Group Limited [ASX:REA] and SEEK Limited [ASX:SEK] are all trying to break into Asia in a big way.

Your next investment opportunity

According to Mirrabooka Investments, investors are getting fed up with large-cap stocks…the banks, Telstra Corporation [ASX:TLS], and the two big miners.

Had you held onto the above over the past five years, your returns wouldn’t be anything to write home about.

MoneyMorning 13-07-18


[Click to open new window]

It’s why Mirrabooka has ventured into mid-caps. Stocks like Reece, Treasury Wine Estates and Lifestyle Communities are some of their favourite picks.

This might be a strategy for you — digging for small-cap gems. But an even better way to watch your portfolio soar (in my opinion) is to get exposure to emerging markets like China, India and Southeast Asia.

Free Guide: Step-by-step blueprint on how you could snap up potential 10-bagger gains with small-cap stocks. Download Now.

Businesses around the world see these regions as a no brainers to grow sales. A changing labour force and billions of consumers growing wealth, what more could you ask for? And it’s why I also think these regions are no brainers for investors as well.

The best part is you don’t have to buy stocks in India, China or Singapore (although there’s nothing stopping you from doing that). You can invest in businesses with exposure to these regions.

Are there risks? Sure, plenty of them. These markets are still emerging. Investors will debate the future potential of these markets for a long time to come. If you don’t like volatility, then these fast growing investments probably aren’t for you.

But make no mistake, there is huge potential here. And if you know what you’re doing you might be able to pick up a 140-bagger like Starbucks.

Your friend,

Harje Ronngard,
Editor, Money Morning


Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.


Leave a Reply

Your email address will not be published. Required fields are marked *

Money Morning Australia