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. (NASDAQ: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 (NYSE: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. (NASDAQ:AMZN) and Nordstrom, Inc. (NYSE:JWN), and it’s a factor Newsome sees in First Horizon National Corp (NYSE:FHN), Pinnacle Financial Partners (NASDAQ: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 (NASDAQ:SHLD) is going to go bankrupt here within the next five years.”

By his estimates, J C Penney Company Inc (NYSE:JCP), Dillard’s, Inc. (NYSE:DDS), American Eagle Outfitters (NYSE:AEO), Fossil Group Inc (NASDAQ: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 (NYSE:SQ), which is revolutionizing merchant processing and online payments.

“That company is ripe to straight-up battle Visa Inc (NYSE:V), Mastercard Inc (NYSE:MA), Discover Financial Services (NYSE:DFS), American Express Company (NYSE: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 (NASDAQ: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) (NYSE:SHOP), despite its recent drop. “It should slowly regain consciousness and come back to life,” Newsome said.

There’s Facebook Inc (NASDAQ: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 (NYSE:GM), which is making progress in autonomous vehicles. Newsome considers even a slight pullback a buying opportunity.

And there’s Wal-Mart Stores Inc (NYSE: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.”