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Young Investors: 1 Canadian Growth Stock With a Warren Buffett-Like, Durable, Competitive Advantage

If you’re a young investor who is many decades away from retirement age, then it’s in your best interest to focus on high-growth stocks that could potentially offer you gigantic returns over the course of the long term.

Unlike older investors, young investors can afford to take a little risk by investing in small-cap names which, on average, have more upside potential than blue chips that form the core of many of our portfolios. If a small-cap investment doesn’t work out, then you have plenty of time to make up for it before the golden years arrive. Retirees simply can’t afford to take such risks, but as a young investor, you can and should have at least a small portion of your portfolio reserved for extremely high-growth names.

Although young investors can afford to take risks, nobody can afford to speculate. With smaller-cap names with bigger growth prospects, you really need to do your homework. Follow Warren Buffett’s investment philosophy and look for wonderful businesses that you understand.

Here’s what I believe is the biggest hidden gem that’s hiding in plain sight.

Spin Master Corp. (TSX:TOY) is an underrated, up-and-coming toy company with a $5 billion market cap and a management team that truly knows how to innovate in the children’s entertainment space.

Toys are a simple business, but predicting what will be a hit and what will be a flop is no easy task. Spin Master has shown that it’s able to consistently produce hit after hit.

Take Hatchimals as an example. Last holiday season, the demand for the toy was off the charts, causing Spin Master to be overwhelmed when inventory was wiped clean off the shelves of stores in what seemed like an instant. The success of the Hatchimals brand went above and beyond what some of the most bullish analysts expected. To say the demand exceeded Spin Master’s expectations would be a vast understatement.

What should investors do following the impressive ~22% post-earnings surge?

Shares have retreated slightly following the surge, and I think that’s a great opportunity for long-term investors to start getting some skin the game. If you thought Spin Master’s Q2 2017 report and its 83.3% adjusted EPS year-over-year surge was impressive, just wait until Q4 2017 results are released.

Spin Master’s lineup for the 2017 holiday season is really strong, and several Spin Master products are probably on the Christmas lists of many kids around the world. Hatchimals 2.0, CollEGGtibles, new PAW Patrol playsets, and other exclusive IPs are simply must-haves this holiday season.

There’s reason to believe that the Hatchimals demand from the last holiday season will continue to be ridiculously high for this year’s holidays. But this time, Spin Master is likely better positioned to meet the sky-high demand.

Bottom line

Spin Master has a very strong portfolio of brands in addition to a pipeline full of innovative products that are likely to become the next Hatchimals. In addition to strong organic growth, the company has been making strategic acquisitions to further beef up its portfolio of brands.

There are many reasons to be bullish on Spin Master over the long term, including the company’s ambitious international expansion plans, but the biggest long-term advantage of the company is its ability to innovate, which I believe will result in next-level gains over the course of the next decade and beyond.

Stay smart. Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette owns shares of Spin Master Corp.

 

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