One of the first things most people will ask about a stock is, “What is the growth potential?”. But I think there is sometimes a better question, “What is the asset potential?”. Often when I’m told about a stock idea it’s because of some cool new product that company is working on, or they are in a field that looks particularly promising. But what happens if that promise is just that and never becomes a reality? You may have paid too much money for a hope.
But what if instead we look for stocks that have assets with potential. The best example of that was Disney back in the 1980’s. At that time it was a sleepy little stock. Then Michael Eisner saw that asset potential of having Sleeping Beauty and Snow White at the beginning of the video age. The stock went up 2000% in 15 years.
Companies can have all kinds of assets with potential. The most common one is real estate. What about a decades old bank with many branches where they own the land has a potential windfall carried on their books at next to nothing? Same story with railroads. Or brand names.
The very cool thing about asset potential is that usually you don’t have to pay a premium price for it. It’s hidden, waiting to be discovered. If a growth story doesn’t work out, the stock could decline significantly. But an asset story by definition hasn’t been exploited yet. Keep that in mind the next time you go looking for the next great growth potential stock. Maybe an asset potential stock might serve even better.