Investors Should Make ‘Vroom’ for Ferrari
In an era dominated by energy-sipping, self-driving wannabes, there is something oddly satisfying about a Ferrari.
Last week, the company Enzo Ferrari carved out of Alfa Romeo in 1939, unveiled its newest roadster. The Portofino lives up to its name. It’s a deep throated, blood pumping, gas-guzzling V-8 built for drivers.
It’s also a lesson for investors. The best companies never stop doing what they do best.
Ferrari began life as a racer. Despite high-tech flourishes here and there, its roots remain unmistakable. Its Maranello factory — a swarm of muscular, low level buildings — is a testament to race dedication.
Even its stock ticker symbol, RACE, speaks to its storied past.
In 2015, Ferrari sold only 7,664 cars. Its target was 7,700. Surely, it could have sold many more. And Sergio Marchionne, Ferrari’s CEO, set a modest goal of 9,000 units by 2019.
It’s all by design. Marchionne is intentionally restricting supply. Rarity is as much a part of the brand appeal as its black stallion logo. Ferrari stands for something.
It’s not lost on the 3,000 artisans working in its central Italian factory. They meticulously piece together bits of leather, metal and rubber.
With massive cradles to carry entire vehicles overhead, every Ferrari is special. Many components are added at the discretion of its well-heeled clients.
In 2012, an especially rare 1962 Ferrari 250 GTO sold at auction for $38.56 million. It was the most expensive vehicle ever sold at auction.
Shareholders have been rewarded, too. In 2015, the company was spun out from its parent, Fiat Chrysler (FCA). The shares debuted at $17.25. Today they are changing hands at $96.10. A $10,000 investment only two years ago would be worth $55,710 today.
Ferrari’s stock is up 73.78% this year alone.
It’s the kind of company more investors should be watching. It’s exceptionally well managed. It’s product line fits a niche, affording great profit margins and huge amounts of free cash flow.
And managers have the restraint to focus on what the company does best: Building street-legal race cars for wealthy customers.
Most importantly, despite the advance this year, it is being largely ignored by mainstream investors who spend too much time chasing perennial turnaround stories that rarely pan out.
Finding names like Ferrari is not easy. Most investors never think to look at specialty stocks. They almost never look past our borders. That’s foolhardy.
To beat the market, you must leave no stone unturned. You should consider breaking with your comfort level. Study the fundamental and technical factors that drive stock prices.
I’m not going to lie. It can be a tricky balancing act.
Ferrari caught my eye long ago. I was drawn to the numbers, and the weird juxtaposition. The entire auto industry is veering toward badge-less fleets of self-driving, electric drones.
Ferrari is having none of that. The Portofino is a fire-breathing V-8 that will vault to 60 mph in 3.5 seconds from a standing start. While that is slower than a Tesla, that’s not the point.
It’s not about vehicle performance. It’s about brand-building and consistency. Ferrari built an investment story around the allure of a rare, handcrafted Italian racer. That market is as vibrant today as it was when the first passenger cars left the factory in 1947. Even in a recession, the rich remain wealthy and keep buying their toys.
Ferrari did something all great, undiscovered companies do: It found a way to build a large, profitable business immune to outside influences.
When you find these companies, you should never let them go. Make vroom for Ferrari.
I’ll be keeping an eye on Ferrari and on other stocks that have remained true to their roots and continue to flourish through the ages because of it.
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