A Business That’s More Efficient Than Japanese Efficiency
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Still, 81 years later, the last of the Pumpkin Bombs is still missing.
You wouldn’t think they’d be hard to find – 10,000 pounds of bright orangey-yellow metal packed with 5,500 pounds of explosive, each 10-foot-long, blimp-shaped Pumpkin was practically visible from space…
They were also a top-secret tactic hiding in plain sight.
Starting in 1944, Manhattan Project scientists built a pile of Pumpkins to exacting specs: they were the same size and weight as Fat Man, the nuclear bomb that would ultimately help end World War II when it fell on Hiroshima.
During the final weeks of the war, American bombers dropped 49 of the rotund Pumpkins throughout the Japanese countryside, as a dress rehearsal for the real thing. The pilots of Enola Gay and Bockscar – the planes that would release Fat Man and its twin, Little Boy – got practice handling the massive weapons, and the Japanese got used to dodging big, fat, oblong bombs. They’d be less likely to notice Fat Man until it was too late.
The Pumpkins weren’t nuclear, but they packed a powerful wallop. During July and August 1945, the pilots of the 509th Composite Group – a specially-trained Air Force unit who’d trained at a classified base in Utah – strafed Japan with Pumpkins, killing around 400 people and wounding a thousand more.
As the 509th honed their aim, they flattened schools, shopping districts, random mountainsides, and the moat of the Imperial Palace.
Not to mention a little car company called Toyota…
By 1945, Toyota – founded in 1926 as an automatic loom factory – was already off to a rocky start. After president Kiichiro Toyoda (who changed the company name slightly for good fortune) started building cars in 1937, the Japanese government had quickly commandeered the assembly lines to make war vehicles.
With Emperor Hirohito calling the shots, Toyoda shuttered production on his Model AA passenger car and focused on assembling military trucks. The government offered one-fifth of the payment upfront and the rest of the cash on delivery. It wasn’t the best business model, but it kept the lights on.
Until the Pumpkin fell, anyway.
By August 14, Fat Man and Little Boy had dropped, but Japan was still embroiled in tense surrender negotiations. Bockscar – the Boeing B-29 that had delivered Fat Man on August 9 – had time to kill and Pumpkins to spare.
So one day before the war officially ended, the plane swerved over the main Toyota plant in Koromo and released one of the last Pumpkins of World War II. A quarter of the facility went up in flames and the whole production line shut down, while two-thirds of the workers went AWOL and never came back.
The next day, Emperor Hirohito formally surrendered via radio broadcast.
The U.S. had 66 leftover Pumpkins, but not for long. Air Force crews quietly escorted the remaining orange bombs 10 miles into the Pacific and tipped the barges into uncharted water.
Of the 49 Pumpkins that were deployed, 48 are accounted for. Japanese researcher Koki Nishioka thinks the final missing Pumpkin is nose-down somewhere in the Kobe region, and he’s still walking the hills with his metal detector, searching.
As the smoke cleared, Toyoda – fearing he’d never build cars again – scraped together a few warehouses and repurposed equipment to assemble radios and grind flour. It took two years to rebuild the squashed Koromo factory. In 1947, American occupying forces finally gave Kiichiro Toyoda the green light to start stamping out automobiles once more.
This did not go so well.
Toyota’s production process was clunky at the best of times, and post-Pumpkin, it devolved into chaos. Foremen scrapped huge batches of parts whenever engineers goofed up – which meant it often took up to a year to make minor design updates. On the floor, workmen clashed over whether to use inches, meters, or the traditional Japanese measuring system, while an ongoing steel shortage and violent labor disputes gummed the works up further.
Toyota was routinely losing up to 300 yen on every 3,500-yen vehicle that rolled off the assembly line, which translated to 8% losses per year.
Staggering under the disapproval of his ancestors, Kiichiro Toyoda moaned,
It was hard for me to bear the fact that Toyota was complacently producing such low-quality vehicles. I felt guilty for many years and lived the difficult life of an outcast.
During the late 1940s – as Japan struggled through the continued humiliation of American occupation – Toyota’s ancestors continued to frown. By 1949, the company was unable to pay its wages, heavily in debt and facing possible bankruptcy. A visit overseas to Ford – which was then producing 80,000 units to Toyota’s 40 – did nothing to improve morale.
In 1950, Toyoda resigned as president, washing his hands of the mess he’d created. He took his unluckily-spelled last name with him, which was maybe a good thing…
That June, the flailing Toyota factory received an unexpected rush order from the Pentagon… for 4,679 Model BM trucks. The Korean War had just broken out, and the U.S. needed a close cross-border supplier for army vehicles.
At 3.66 billion yen, the contract was, in the words of the Bank of Japan, “divine aid.” It also posed some problems, such as, how the hell would they get all this done by October?
Enter W. Edwards Deming, the American efficiency expert that everyone would rather forget…
I Don’t Get No Respect
“Japanese efficiency” is a perennial buzzword in corporate culture, but frankly, Japanese industry started out as a hot mess. Japan’s famed efficiency culture comes straight from a Wyoming quality-control expert.
W. Edwards Deming traveled to Japan in 1947 to help conduct a census, and stayed to lecture on statistics. By 1950, he was drawing crowds of business leaders to seminars on his PDCA Cycle, a continuous, rolling checklist of Plan-Do-Check-Act.
The Check part of the cycle was where Toyota kept screwing up. Deming explained that it was counterproductive to inspect products for flaws after they rolled off the assembly line – it was much more efficient to troubleshoot while they were still being built.
Deming hadn’t had much luck suggesting these ideas to hard-headed American car manufacturers – but the Toyota team was eager for any help they could get. Toyota’s new president, Taizo Ishida, and chief production engineer Taiichi Ohno quickly implemented Deming’s ideas. They also added some Japanese flourishes: Kaizen (continuous improvement), Jidoka (automation with a human touch), and Kanban boards, a visual way to streamline production.
Conveniently erasing Deming from the picture (and from their promotional materials), they dubbed the new method the Toyota Way.
The turnaround was instant. Armed with Deming’s quality-control magic, Toyota successfully fulfilled its Korean War truck contract and went on to double its book value and crush production goals over the next five years. (By then, surprise, Kiichiro Toyoda wanted to come back on board as CEO, but he died of a cerebral hemorrhage before he could rejoin.)
As the decades rolled on, the Toyota Way (really, the Deming Way) transformed a pumpkin-flavored pancake into America’s number-one import car, a business that would outperform both Ford Motor and General Motors during the 1970s gas crisis. By the mid-1980s, Toyota was building its own factories on American soil and producing 4 million vehicles a year, a close second to Ford.
By then, Ford and other American companies were reaching out to W. Edwards Deming, begging him to re-design their own assembly lines. Too little, too late…
After a lifetime of snubs from American companies – and watching Japanese companies take credit for his ideas – Deming was too worn out to do much more consulting. He died in the early 1990s, efficient to the end: he left behind a refrigerator full of eggs with penciled expiration dates, arranged oldest to newest.
His quality-control system had a far longer shelf life.
Poached!
In 1986, after becoming the first foreign company to sell 1 million cars in America, Toyota realized it had another valuable commodity to export: good advice.
Hand-picking several of his top efficiency experts, CEO Taiichi Ohno sent them out with his blessing to form a consulting company called Shingijutsu, which would teach all sorts of companies how to implement the mystical Toyota Way.
They were quick to point out that if you really wanted to put the Way into practice, you had to come work at Toyota – but they were happy to teach you how to personalize a version for your own factory… for a hefty fee, of course.
Shingijutsu’s experts traveled to large industrial companies to tutor them in Japanese efficiency, also known as “lean” manufacturing, and by various cult-y sounding buzz phrases like Just In Time and “Six Sigma.” Underneath all the window dressing, it was the same old PDCA Cycle from poor, forgotten W. Edwards Deming.
And cult-y sounding or not, it worked like a charm. During the 1990s, a rash of high-profile companies adopted “lean” principles with spectacular results: Motorola saved $16 billion and eliminated 90% of its semiconductor defects, General Electric reduced production time on its engines by 30% and moved 50% more inventory off the floor, and on and on. Today versions of the Toyota Way are still maximizing efficiency at some of the largest Fortune 500 companies, including Boeing, Caterpillar, and Deere & Co.
The 40-year-old company we are recommending in this issue of Best Buys is one of them…
A $150 billion science and tech juggernaut, this company credits its success largely to a personalized version of the Toyota Way that its CEO learned from Shingijutsu’s traveling experts. Happily for us, its performance has been unfairly overlooked, making it a world-class business at an ideal entry point.
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1. Danaher (NYSE: DHR)
Danaher (NYSE: DHR) is a science, medicine, and technology firm that owns and operates dozens of specialized companies.
Why We Recommended Danaher
With a market cap of $150 billion, Danaher owns nearly 20 companies across three industry segments, generating close to $25 billion in annual revenue.
Growing through acquisition is a fairly common practice – in fact, there are more than $2 trillion in mergers and acquisitions (M&A) every year. But three-quarters of these M&A transactions fail, and wind up destroying shareholder value.
Danaher defies these odds because it doesn’t just “buy” a business. It ensures its money is put to good use. To do this, inspired by Japanese efficiency, it created a playbook for transforming good companies into great ones – it is part of the company’s guiding philosophy called the Danaher Business System. It is a systematic way to build efficiencies for supercharging profit margins and returns on capital, regardless of the business model or industry.
Since its founding in 1984, Danaher’s success following this approach is reflected in its financial performance. Over its 40 years, the company has compounded shareholder capital at an incredible 21% per year. That’s nearly twice the S&P 500’s compounded annual return of 11.6% over the same period.
Why Danaher Is A Best Buy
Danaher has fallen out of favor after a post-COVID hangover from the boom and subsequent bust in sales of respiratory testing equipment. But now, after two years of destocking excess inventories, Q1 2026 bioprocessing equipment orders grew more than 30% year-over-year (“YOY”) for the first positive order growth in nearly two years.
The recovery that began in Q1 continued into Q2, with Danaher’s net income up 60% YOY to $1.23 per share. Importantly, the company’s measure of core revenue, which excludes respiratory testing, increased by 4.5%, indicating that the core demand for bioprocessing equipment and services is returning to growth after the multi-year post-COVID slump.
Management raised its full-year 2026 outlook for earnings per share to $8.53, up from a prior forecast of $8.45. Meanwhile, the business continues to generate a healthy amount of cash, with free cash flow up 15% YOY to $1.3 billion in Q2.
With 80% of revenue coming from a stable source of recurring orders of consumables, reagents, and service, the core business remains stable and recession-resistant. Trading at around $200, we’re getting a chance to buy into this long-term compounder at 23x earnings, just as the business reaches an inflection back to consistent earnings growth.
Action to Take: Buy Danaher (NYSE: DHR) up to $250 per share
2. Versamet Royalties (Nasdaq: VMET)
Versamet Royalties (Nasdaq: VMET) is a fast-growing precious metal royalty company.
Why We Recommended Versamet Royalties
Versamet Royalties (Nasdaq: VMET) is one of the fastest growing precious metals royalty companies in the world. Since 2022, it has increased royalty production volumes from zero to 10,000 gold-equivalent-ounces (“GEOs”) and is on track to double in size this year to 20,000–23,000 GEOs.
Royalty and streaming companies are the tollbooths of the mining world. Rather than operating mines – with all the capital expenditures, labor, and operating risks that entails – royalty companies provide upfront financing to miners in exchange for a percentage of future production (royalties) or the right to purchase metal at a fixed, below-market price (streams).
Led by CEO Daniel O’Flaherty, who holds one of the greatest track records in the industry, Versamet has been compounding at 50% annually across every meaningful metric – revenue, cash flow, production – without issuing equity or having to invest in mine development. Since the company began trading on the Nasdaq just six months ago, on March 6, most investors have not heard of it, so the stock is still cheap. At around $10 per share, the business trades at a market cap of $1.1 billion. And based on current gold prices of $4,500 per ounce, we expect the business will generate close to $100 million in revenue this year, with staggeringly high operating margins above 90%.
We see several catalysts ahead that will unlock significant shareholder value, including a major acquisition of a royalty stream on one of Canada’s most promising new gold mines. As more catalysts begin to unfold, and as more analysts begin covering Versamet and it becomes eligible for index inclusion, this will likely lead to a significant re-valuation of its shares.
Why Versamet Royalties Is A Best Buy
On August 13, Versamet reported its fourth consecutive record quarter since going public. Revenue of $23.7 million was up nearly fivefold YOY, GEOs hit a record 5,255, and the cash cost margin reached 93%. Management reaffirmed 2026 guidance of 20,000 to 23,000 GEOs. And by 2028, once Skeena Resources’ Eskay Creek open-pit, gold/silver mine in British Columbia reaches production, Versamet’s output climbs past 30,000 GEOs on our conservative base case, with analyst consensus near 40,000. That’s a quadrupling in four years – without operating a single mine or spending an additional dollar of capital on expansion.
Eskay Creek is Versamet’s cornerstone acquisition and is the reason we’re elevating VMET shares now. In April, Versamet paid $360 million for a 3.52% life-of-mine gold stream on Eskay Creek – the restart of what was historically one of the highest-grade precious metals mines on Earth, producing 3.3 million ounces at 45 grams per tonne during its 1994–2008 run in British Columbia’s Golden Triangle. Operator Skeena Resources has construction 62% complete, fully permitted, with first production targeted for Q2 2027. Once running, Eskay Creek sends Versamet more than 10,000 ounces of gold per year – roughly $45 million in annual revenue at current gold prices – and Versamet funded 94% of the purchase with debt, issuing just 2% in new shares.
Versamet trades at 10x 2027 estimated cash flow. Its royalty peers – Franco-Nevada (FNV), Wheaton Precious Metals (WPM), Triple Flag Precious Metals (TFPM), and the rest – average 18x to 20x. A re-rate to the bottom of the peer range roughly doubles the stock – and that’s before any credit for rising gold prices, which flow almost entirely to the bottom line at a 90% margin.
The mechanical buyers are already arriving. Daily trading volume has risen roughly tenfold since late 2025. MSCI added VMET to its Small Cap Index in May. And the company expects to meet inclusion criteria for GDXJ – the most widely held junior gold exchange-traded fund (“ETF”) – in the second half of this year. Index inclusion forces buying, regardless of price.
Action to Take: Buy Versamet Royalties (Nasdaq: VMET) up to $24 per share
3. Salesforce (NYSE: CRM)
Salesforce (NYSE: CRM) is the world’s leading cloud-based customer relationship management platform.
Why We Recommended Salesforce
Salesforce (NYSE: CRM) is a global leader in cloud-based software, specializing in customer relationship management solutions. With a $140 billion market cap, it generates just over $40 billion in annual revenue. Salesforce empowers businesses of all sizes to connect with customers in innovative ways through its integrated online software platform. The company’s core offerings include tools for sales, customer service, marketing automation, analytics, and application development. These products are all designed to enhance customer engagement and streamline business processes. With a strong focus on digital transformation, Salesforce serves industries ranging from small startups to Fortune 500 enterprises.
Salesforce has 72,000 employees worldwide, serving 150,000 customers. Company revenue has increased at a compound annual growth rate of 24% since 2004, when shares went public. In fact, its revenue has never been down YOY – even during the 2008 Global Financial Crisis or the COVID pandemic.
Why Salesforce Is A Best Buy
In a single trading session in February, $285 billion in market cap evaporated from enterprise software stocks like Salesforce. At its April 10 low, the iShares Expanded Tech-Software ETF (IGV) had fallen 35% from its 2025 high.
The consensus explanation was that artificial intelligence (“AI”) is eating software – and that software companies’ days are numbered. But it’s not as simple as that: not all software companies are dying, and the companies that survive this paradigm shift will be more valuable than the old ones ever were.
Salesforce has seen its stock hit heavily recently – down 22% year-to-date – largely driven by this investor anxiety regarding how its traditional user-based licensing model will survive as AI replaces human roles. In response, Salesforce has pivoted its pricing structure toward consumption-based billing, charging per automated task completed rather than per human worker.
Its plan seems to be working, as Salesforce is performing strongly: for fiscal Q1 2027, released on May 27, revenue rose 13% YOY to $11.1 billion, and EPS of $3.88 beat consensus estimates by 24%, signaling that the company’s past cost-cutting efforts are heavily falling to the bottom line. Crucially, its critical growth catalyst, Agentforce, crossed the $1 billion annualized recurring revenue (“ARR”) milestone, proving real enterprise adoption. ARR is up roughly 205% YOY, proving the enterprise adoption thesis.
Management returned $27.5 billion to shareholders during the quarter, highlighted by a $25 billion accelerated share-repurchase program. While the enterprise software landscape remains sluggish, Salesforce’s aggressive buybacks and embrace of AI will continue to drive its growth.
Salesforce reports Q2 2027 earnings on August 26, with guidance for revenue around $11.3 billion (up about 10% YOY) and consensus estimates for EPS near $3.10.
At roughly $200 per share, Salesforce trades at less than 15x forward earnings. While shares have rallied roughly 25% since we recommended Salesforce as a Best Buy in July, it’s still trading at a multiple that prices it as a disruption victim. That discount will shrink as Salesforce continues to execute.
Action to Take: Buy Salesforce (NYSE: CRM) up to $251 per share
Every month, we highlight three current recommendations that are at an attractive buy point, and we include those with the best buying opportunity as our Best Buys. While we sometimes alternate which companies we list as our Best Buys, removing a stock from the list does not necessarily mean we no longer recommend it – nor does it imply a recommendation to sell shares in that company once it is no longer a Best Buys. It’s only that the new picks present an even more compelling investment opportunity.
Important: Porter & Co. intends to invest $500,000 of its own capital in securities in our Best Buys, including several of the recommendations written about above. Porter & Co.’s decision to purchase these stocks should not be considered personalized financial advice. Probably not surprising to you, but if we like a stock or bond, we buy it. Some people don’t like that, while others think it’s a good sign if the analyst has skin in the game. It’s also a good idea to consult with an investment professional before purchasing any securities – maybe even run it by your mother or golfing buddies. And there’s more… Porter & Co. does not recommend positions in unregulated securities because there are plenty of good ones that are regulated.
Porter & Co.
Stevenson, Maryland
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