(By Andy Obermueller) It came down to an esoteric measure that maybe one investor in 100 gives a hoot about.
It didn't have to be like this.
I was interested in insurance, notably Aon (NYSE: AON) and Marsh McClendon & Co. (NYSE: MMC), which provide insurance services to large companies. They help large businesses solve major insurance headaches, getting the right policies in effect and handling a lot of back-office details. It's surprisingly big business: Aon and Marsh alone have combined revenue of nearly $25 billion a year.
This got my attention. I decided to take a closer look…
Aon is a little smaller in terms of market cap, $16.3 billion to Marsh's $18.4 billion. They have similar valuations, too: Aon trades at 17.5 times net earnings, Marsh at 18.8. Revenue is comparable: $11.2 billion at Aon to Marsh's $11.5 billion.
Marsh seems a little nimbler: It has 9,000 fewer employees than Aon, and, as a consequence, its net margins are higher. Both companies are heavily owned by institutions, with the smart money holding more than 80% of both. Year-to date performance is also nearly identical, as is Aon's and Marsh's five-year return, during which neither beat the S&P.
The balance sheet was the kicker. At the top, Marsh looks great -- it has tons of cash on hand ($1.4 billion to Aon's $286 million). Marsh also carries less goodwill on the books and shoulders only about a third of the total debt that Aon is saddled with.
Down at the bottom of the balance sheet, though, was the tipping point. Since 2008, Marsh has built the net value of its business, as measured by the company's shareholder equity, or net worth, by a meager 2.8%. Aon, meantime, saw its net worth balloon to $8.0 billion from $5.3 billion, a 52% gain.
So I bought a little Aon: I know it wants to outperform Marsh. I can guess it will ultimately see that controlling expenses is the way to do that, but perhaps in the short term, the thinking is that its 9,000 additional employees will give it a competitive advantage. Given its strong No. 2 position, I can accept that line of thinking, and I'm willing to accept a compound annual growth rate in shareholder equity of 15% a year in the meantime, which the company ought to be able to manage if only by paying down debt.
Now, hear me: If you want great returns, don't ever, ever buy a stock like this.
Not even once.
You should never have to look this hard for a reason to buy a stock. If you do, you're always going to be disappointed with the results.
To be honest, I don't expect much out of Aon.
But what about a company that's growing 100% a year?
What about a company with such a great business that it's been able to grow even in the Great Recession?
What about the next Apple (Nasdaq: AAPL), the next Google (Nasdaq: GOOG), the next Starbucks (Nasdaq: SBUX)?
Listen, those companies are out there.
Right now, as you read this, some very smart people are completely uninterested in the economy. They've trained their focus instead of bringing about The Next Big Thing.
These are the companies I write about each month in Game-Changing Stocks.
Here's an example:
There's a company that has the potential to take the diesel engine off the highway and relegate it to museums. By building high-efficiency motors that are powered by natural gas, this company is able to deliver the same amount of horsepower that semi-trucks need while emitting almost zero pollution and running at a significantly reduced cost. Best of all, these vehicles -- the engines of our economy -- can be powered by 100% American-produced energy instead of relying on Middle Eastern sources.
Since I recommended this company, shares are up 42%.
Small security company... Niche technology... Trading at less than five bucks a share. I identified it as the leader in its space and saw the potential for it to lead a revolution in mobile payment technology -- that is, in using your phone like a credit card.
I was right. Wanna know how I know? Because Tim Cook, the CEO of Apple, bought the whole company to make sure that Apple has the best mobile payment technology in the world.
Shares gained more than 200% -- in less than one year.
This is the power of Game-Changing Stocks.
These exciting companies can move the needle on your entire portfolio. Finding them, of course, takes some vision -- some imagination. But I take care of that.
Action to Take --> All you have to do is 1) sit back and let me deliver winners to your inbox, and 2) never act on lackluster advice, and never buy a boring ho-hum stock ever again.
If finding The Next Big Thing interests you, then I encourage you to read my special report, 11 Surprising Investment Predictions for 2012. Some of them have already come true, but there are still ways for investors to profit. Go here to learn more...
Andy Obermueller does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally appeared on StreetAuthority
Author: Andy Obermueller