This Millennial Trader Pinpoints Customer Service As A Key Sign Of Company Longevity

Jerremy Newsome has a kind of youthful optimism — the type that drives a permabull.

In fact, the CEO of Real Life Trading considers that confident approach “more financially responsible” for younger traders like him.

The 20-something Newsome has years of investing ahead, and as he lays his bets, he looks for firms with similar qualifications. Preferably, 20-year staying power.

“What I’m looking for is companies that I know going forward are going to be around and going to be viable and making money,” he said Oct. 9 on Benzinga’s PreMarket Prep radio show.

The Warren Buffett Approach

He makes that determination based on what he calls the “Warren Buffett approach” — a consideration of who currently makes money, who people are interested in, and who is transparent in financial strategy.

This method guided last year’s successful call on Netflix, Inc. NFLX, a company Newsome expects to endure. He predicted the then-$96 stock would reclaim its $130 high within a year. It hit $189 in 10 months. Now, using the same predictive model, he expects the stock to break $200 (which it did this week).

The companies with determined longevity are appraised based on one thing: selling ability.

“Valuation for me often comes down to ease of revenue and revenue models,” Newsome said. “My overall thought is: how easy is it for consumers to spend the money on these products? How quickly will I whip out my credit card to pay for something that this company is selling?”

To Newsome, price is insignificant if the product sells. Incremental sales and repeat customers for $5 commodities can generate meaningful long-term revenue.

The Grant Cardone Method

Newsome is loyal to the Warren Buffett approach, but he’s diverged from the namesake on a single investment.

“His Bank of America Corp BAC play was the only one that I was like, ‘Nope, not touching that one,’” Newsome said.

The problem? Customer service. He judges banks by what he calls the “Grant Cardone Method,” largely weighing customer satisfaction. A company that stays for 20 years has to appease its clients.

It’s a common factor among Netflix, Amazon.com, Inc. AMZN and Nordstrom, Inc. JWN, and it’s a factor Newsome sees in First Horizon National Corp FHN, Pinnacle Financial Partners PNFP and other small banks.

But it’s lacking among big banks, and it’s also absent in retail.

“[Retailers] are still very bad at that,” he said. “They haven’t figured that part out yet. That’s why Sears Holdings Corp SHLD is going to go bankrupt here within the next five years.”

By his estimates, J C Penney Company Inc JCP, Dillard’s, Inc. DDS, American Eagle Outfitters AEO, Fossil Group Inc FOSL, mall stores in general will “go underwater” soon.

“What is in store for these retailers? I don’t think people,” Newsome said. “That’s the thing: people are not in stores.”

For mall shops to stay afloat, he foresees a more definitive shift to e-commerce or a fresh emphasis on “experience,” perhaps one tied to in-store entertainment or related promotions.

“Otherwise, it’s just a huge question mark, and I think it’s going to be scattered by online boutique stores,” Newsome said.

So Who Passes The Tests?

First, there’s Square Inc SQ, which is revolutionizing merchant processing and online payments.

“That company is ripe to straight-up battle Visa Inc V, Mastercard Inc MA, Discover Financial Services DFS, American Express Company AXP,” Newsome said, noting that it’s undervalued and under-discussed. “They can almost create their own bank in the next 10 years if they really wanted to…. Really we haven’t seen a company like that I would argue since Visa.”

Then there’s Paypal Holdings Inc PYPL, which has a hold on peer-to-peer money transfers with both Venmo and its titular platform. Newsome predicts a near-term shift into cryptocurrency exchanges and a long-term rise in share value.

There’s Shopify Inc (US) SHOP, despite its recent drop. “It should slowly regain consciousness and come back to life,” Newsome said.

There’s Facebook Inc FB, whose powerful portfolio includes WhatsApp, Instagram and Facebook.

“If you’re on the internet or you’re texting or you’re communicating with somebody, they [Facebook] probably have your information,” Newsome said. “You’re talking one of the biggest companies in the world right now that doesn’t pay dividends, and it’s pretty lowly priced. I love Facebook.”

There’s General Motors Company GM, which is making progress in autonomous vehicles. Newsome considers even a slight pullback a buying opportunity.

And there’s Wal-Mart Stores Inc WMT; its acquisition of Jet.com positioned it to compete with Amazon.

“Wal-Mart knows what they’re doing,” Newsome said, predicting a continued rise. “It’s going to be a while before they go somewhere because they have a really strong niche in just the consumer discretionary product field.”