I know I’ve been talking about the population boom in Texas quite a bit lately, and I promise to move to other subjects soon, but I really do feel like this is the biggest story nobody is talking about—especially if you’re on the lookout for stocks to buy.
Most investors like growth. I’m no exception. And in this era of the perpetual non-recovery recovery, the only place to find real growth (on this continent anyway) is deep in the heart of the Lone Star State.
I just got back from visiting ten companies in Houston and Austin and I was mesmerized by the economic frenzy I witnessed. Construction cranes were everywhere, especially in Houston. It reminded me of my trip to Shanghai and Beijing last fall, and also my early years in the investment business at a Houston-based bank called Texas Commerce. The city was in the midst of a ten-year rally in oil prices back then, and the confidence and optimism I sensed in people on this trip was reminiscent of those heady days—with one key difference: this current boom is much more sustainable.
In the 80s, the region was almost wholly dependent on energy. Now, of the ten companies I visited last week, only two were in that volatile sector. Austin’s economy exemplifies this diversification. Back when I lived in Texas, it was a college town, with a good (but not yet great) public university. Today it’s a magnet for technology companies, corporate headquarters and creative, irreverent residents. Two of the five Austin companies I visited had relocated to Texas in recent years from other states. Everyone I met with was bright and highly-motivated. They were also—and this may come as a huge surprise to my fellow Californians–happy to live in Texas.
A few months ago I told a San Francisco lawyer that I used to live in Houston. He quickly offered a wiseacre reply, “my condolences.” As I always do when I encounter this kind of dismissive attitude, I asked if he had ever lived in Texas, and as always, the answer was no. This smug intolerance of so-called “red state” America is common in California, especially in the Bay Area. It’s not just annoying, it’s economically destructive. Californians believe that businesses—and their employees—will do whatever it takes to remain here. But recent history has offered plenty of evidence to the contrary. Companies have been fleeing the state for years now, and the exodus is only growing.
You can’t have a stable, fair, and prosperous society without a thriving private sector. Sure, California still has plenty of motivated, creative entrepreneurs. But with fewer and fewer good-paying middle-class jobs, our public schools are crumbling and we’re turning into a starkly stratified society of very wealthy haves and very poor have-nots. Texas, on the other hand, is doing everything it can to provide good-paying jobs to middle and working-class people, and they’re coming to the state in droves.
One of my favorite Texas-based companies is riding this boom to record profits. LGI Homes (ticker: LGIH) builds quality, affordable homes, mainly in Texas and Florida. I plan to write more about LGIH for Seeking Alpha soon, but for now I’ll just say that its average, entry-level residence costs around $150,000. That kind of price is unheard of here in California. But down in Texas, it’s common. With housing that affordable, a plumber or teacher or office worker can raise his or her family in a decent home and send their kids to quality public schools. You know, that whole American Dream thing. Remember that? It turns out, people still want it, and they’re willing to move to make it happen.
Not surprisingly—to me at least—LGI Homes is thriving. Its earnings have been growing, and guidance for this coming year is off-the-charts. And yet, nobody seems to know it exists. A paltry 107 people receive updates on its stock at Seeking Alpha, compared to 55,860(!) for the unprofitable and over-priced California company, Tesla. I don’t know about you, but I love finding fast-growing companies that haven’t been discovered by the masses and bid up beyond reason (ahem, Tesla). And these days, the place to find those hidden gems certainly isn’t Silicon Valley or anywhere else in California. It’s deep in the heart of that state people in California like to turn their noses up at.