| | | Hello. | One of the most useful habits in investing is figuring out what a company actually does to make money, which is often pretty different from what the company looks like from the outside. The brand sells you one thing. The financials tell a different story. | Today's edition is a teardown of four well-known companies where the real engine is hiding in plain sight on the income statement. The point is interesting first, useful second: once you've seen the trick a few times, you start asking the same questions about every stock you look at, which is the actual skill that separates careful investors from impulse buyers. | Four companies, four reveals. Let's get into it. | This is not financial advice. Always do your own research. Past performance doesn't guarantee future results. |
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| | Costco: The Membership Club That Sells Groceries on the Side | Costco looks like a giant warehouse selling everything from rotisserie chickens to four-pound bricks of cheese. The numbers tell you the real business is the $65-a-year membership fee (or $130 for the Executive tier) that everyone who walks in the door has to pay. | Costco's gross margin is around 11%, which is among the thinnest in all of retail. They sell groceries roughly at cost on purpose. Where the profit comes from: in their most recent fiscal year, Costco collected $5.3 billion in membership fees alone, money that hits the income statement before they sell a single thing. The retail business essentially runs near breakeven. The fees do the heavy lifting. | The kicker: Costco's US and Canada renewal rate is 92.3%. Once people are members, they almost never leave. That's the engine. |
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| | Airlines: The Credit-Card Companies That Fly Planes on the Side | You probably think Delta makes money by flying people from one airport to another. Sort of. The bigger story is that Delta is one of American Express's biggest single customers. | The trick works like this. Airlines sell miles in bulk to credit-card banks. The banks then hand those miles out to consumers as rewards every time someone swipes a co-branded card. The miles cost the airline almost nothing to create. The bank pays real money for them. | | Delta's co-brand deal with American Express was worth about $8.2 billion in 2025, more than 10% of Delta's total revenue. United runs a similar (smaller) program with Chase. American does the same with Citi. | In any given year, the actual passenger-flying business runs at thin or even negative profit margins. The credit-card cash is often what's left after the dust settles. The airlines you fly are running banks with airplanes attached. |
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| | Insurers: The Investment Funds Wearing a Trench Coat | Insurance companies look like they sell coverage and pay claims. They do. They also use the gap between when you pay your premium and when somebody files a claim to run a quiet investment operation in the background. | Warren Buffett popularized the name for this: "float." Premiums come in today. Claims get paid out years later. Whatever sits in between is essentially free capital the insurance company gets to invest. The investment income on that pile is often what makes the whole business profitable. | | Berkshire Hathaway's insurance float was around $176 billion as of late 2025. Berkshire earned roughly $13.7 billion in insurance investment income in 2024 alone, which outpaced the company's underwriting profit (premiums minus claims) that same year, even in what was an unusually strong year for underwriting across the industry. | Progressive, Allstate, and the rest all run the same model with smaller balance sheets. When you pay your car insurance every six months, you're effectively lending the insurance company money interest-free. They invest it, keep the returns, and treat premiums-minus-claims as a separate line of business on top. |
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| | McDonald's: The Landlord That Sells Burgers on the Side | McDonald's is the most famous example of the pattern and it’s one that some readers may already know about, but the numbers are worth looking at because they make the point cleanly. | About 95% of McDonald's stores worldwide are franchised (run by independent operators). McDonald's owns the buildings at roughly 80% of those locations and the underlying land at roughly 56%. The franchisees pay rent on top of royalties. | | In fiscal year 2024, McDonald's collected about $10 billion in rent from franchisees and about $5.6 billion in royalties. The company's overall operating margin is about 45%, which is closer to a real estate trust than a fast-food chain. | Harry Sonneborn, McDonald's first president, designed the strategy in the 1950s. As his framing (famously dramatized in The Founder) put it: the real McDonald's business is the land underneath the restaurants, not the burgers on the grill. |
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| | How to Use This on Any Stock | The point of all of this isn't that Costco, Delta, Berkshire, and McDonald's are bad companies. They're all extremely good companies. The point is that what a company looks like from the outside is often not the same as what's actually making the money. | A few questions you can ask about any stock to do this teardown on your own: | Where does the profit actually come from? (Not revenue. Profit.) Companies often hide their highest-margin business in a non-headline segment. Is the headline business running at a thin or negative margin while something else does the real work? (Costco, airlines, and McDonald's all fit this.) If the company stopped doing its "main thing" tomorrow, how much profit would actually go away?
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| | A Quick Way to Check the Underlying Business | If you want to skip the spreadsheet work and get a faster feel for what's actually happening inside a company, our partners at AltIndex score thousands of stocks on a 0-100 scale based on hiring trends, web traffic, sentiment, and insider activity. A name where the alt-data is strong despite a flat or boring "main" business is often a sign that there's something more interesting going on under the hood. | Start a free 7-day trial of AltIndex → |
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| | 🫡 See You Soon | Four reveals, one habit. | Costco is a membership club with a warehouse. Delta is a credit-card bank with planes. Berkshire is an investment firm with an insurance counter. McDonald's is a landlord with a burger menu. | None of these companies are lying about what they do. They just earn most of their money in a different place than the brand suggests. The investors who notice that pattern early are the ones who tend to make the best long-term picks. | That's our take, and that's today's edition. See you tomorrow. | — Brandon & Blake of Invested Inc |
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| | ⭐️ What did you think of today's edition? | |
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| | | | The information provided in Stocks & Income is for informational and educational purposes only and should not be construed as financial advice, investment advice, or a recommendation to buy or sell any securities. Stocks & Income is not a registered investment advisor, broker-dealer, or licensed financial planner. Always do your own research and consult with a licensed financial advisor before making any investment decisions. We may hold positions in or receive compensation from the companies or products mentioned. Disclosures will be made where applicable. | Stocks & Income, AltIndex, Finance Wrapped, The Chain, and Future Funders are all owned by Invested, Inc. |
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