Peter Lynch, legendary manager of the Magellan fund in the 1970s and 80s, tells the story of one of his best investments. It was very simple.
His wife tried a new pantyhose brand called L’eggs and thought it was great. Lynch did some research and bought shares in the brand owner. L’eggs radically changed the hosiery marketplace and he made a 10-fold return on his investment.
He reckons that if ordinary folk like you and I keep one eye out for investment ideas as we go about our daily lives, we’ll see potential winners all around us.
Now, with my eyesight, I really need both eyes just to avoid walking into plate-glass doors and so on. But over the years I’ve managed to develop what I think of as a little Peter Lynch, sitting in my peripheral vision, alerting me to possible investment opportunities.
Silky Hotel
Due to a family connection, I recently found myself obliged to watch a BBC pilot sitcom called ‘Silky Hotel’.
The hotel is in trouble. The attractions of the “billowing gauze of The Meatloaf Suite,” the “twinkling lights on the Kem & Amber terrace,” and the “original tent peg from Brokeback Mountain” are no longer pulling in the punters like they used to.
In a last roll of the dice to avoid insolvency, the proprietors attempt to get Silky’s on to a reality TV show that’s looking for the world’s most romantic hotel.
Of course, for comedy to work, there must be some truth at its heart. And, as the final credits rolled, the little Peter Lynch on my shoulder whispered two FTSE 100 names into my ear.
How to do hotels
Whitbread‘s Premier Inn hotels may not be the world’s most romantic, but they’re loved for the consistency of the experience they offer and their reliability in meeting or exceeding guests’ expectations.
Sure, there are some great independent hotels around. But there are also plenty of real-life hell holes, like Silky’s. Understandably, there’s been a long trend of guest migration from independent to branded hotels, especially in the budget segment of the market.
Premier Inn has become the UK’s biggest chain, with over 800 hotels and 79,000 rooms. But the market’s still pretty fragmented (independents have a 48% share), and Whitbread believes there’s scope to grow Premier Inn to at least 110,000 rooms.
What’s more, the company has recently entered Germany, where the market’s not only bigger, but also more fragmented (independents have a 72% share). There’s execution risk, but replicating Premier Inn’s UK success in Germany represents a huge growth opportunity for Whitbread.
Reality check
I’m a sometimes user — and fan — of Premier Inn, but I can’t say the same about reality TV. Nevertheless, I can see the UK public has an insatiable appetite for it, and that hit shows, like ITV‘s I’m a Celebrity and Love Island, develop into valuable international franchises.
Of course, the company does a lot more than reality TV. And more than you might think. For example, it produces the hit drama series Line of Duty for the BBC.
Its streaming platforms are also growing strongly, while beneath the bonnet there are other growth drivers in the shape of its advanced advertising platform Planet V and an increasing portfolio of investments in innovative early-stage businesses within the ever-evolving entertainment landscape.
Certainly there are challenges for ITV in responding to the changes in that landscape, as well as in attracting and retaining top creative talent. Nevertheless, the company appears strongly positioned to continue producing hugely popular content and exporting the best of British around the world.
Like a lot of so-called recovery stocks, ITV and Whitbread have gone off the boil since making post-market-crash highs earlier this year. Both are currently trading at significant discounts to those highs. For me, this makes them even more interesting.
Last L’eggs
I’ve only sketched the growth potential of the two businesses, some of the risks and the possibility of value in the shares. You’d want to know a lot more before deciding whether there’s investment merit in either or both of them.
So, if Whitbread and ITV aren’t my Foolish tips for the week, what is? Simply this: incubate your own little Peter Lynch as you go about your daily life, and you’ll never be short of investment ideas that bear further investigation.
Who knows, with the right idea, research and analysis, you might just hit upon as profitable an investment as L’eggs was for Lynch.
