A Big Win for Our 'Dark Stocks' Strategy
A big win for our 'dark stocks' strategy... 'Nobody else does this kind of work anymore'... The ongoing 'trade war' is heating up again... Apple sounds the alarm on tariffs...
A little more than two weeks ago, Porter shared a controversial change to his investment philosophy...
In short, rather than trying to beat the market year in and year out, he has become more and more convinced of a far better and easier way to build wealth in the stock market. As he explained in the August 24 Digest...
In addition to the approach we've been teaching for 20 years, there's a different approach that works, too. It's an approach that ignores the market's average return completely. It's an approach that requires zero CNBC. Zero newsletters. Zero hedge-fund managers. Zero trailing stops. The approach I'm talking about, in a way, ignores stocks altogether.
It's an approach that focuses on treating your investments in public equities (stocks) the exact same way you treat the investments you make in real estate or a private business. It's an approach that requires you to understand the businesses you buy, the same way an owner would. A business owner isn't likely to sell just because he has a bad quarter or because the industry suffers a few down years. Instead, a business owner will use a downturn to buy up his competitors or to buy equipment on the cheap.
Why wouldn't you invest this way?... This "whole business approach" means that every time you buy a stock, you treat it as though you were going to buy the whole business and control it.
Obviously, that's not what happens – you won't be in control. And that means you have to make sure that you're buying at a good price... so that if the management teams screw everything up, you can sell without taking a big loss. Ideally, though, you never sell.
In that same Digest, Porter also 'pulled back the curtain' on our first product designed to find these kinds of opportunities...
He revealed the three powerful strategies his team uses in our elite Stansberry Venture Value service to uncover tiny, high-quality businesses with massive long-term potential. And he even shared the names of several of their favorite open recommendations.
One of these strategies
I know you won't find this concept anywhere else. It's completely uncorrelated with the stock market as a whole. We look for "dark stocks."
These are very unusual situations where, for one reason or another, a company's actual results haven't yet been integrated into Wall Street's main databases, like Bloomberg or Reuters. Investment firms rely on these databases to search for value and to populate their quantitative models. Essentially... if your firm's data isn't in Bloomberg, your company might as well not exist.
We know about these situations only because we actively look for them. We pick up the phone. We call executives and accounting firms. Trust me, virtually nobody else does this kind of work anymore. But this kind of research can be far, far more valuable, and far more certain than trying to guess when the next bear market will start.
And again, he shared the name of one of their favorite open "dark stock" recommendations...
Shares of Hanger (HNGR) fell from more than $40 to under $5 because of an accounting snafu. This company is the leading maker of prosthetic limbs in the U.S. It's a real, high-margin business. But it might as well be invisible to Wall Street. For years, there were no current financials on Bloomberg. And the stock has been de-listed from the New York Stock Exchange ("NYSE").
Unfortunately, the company got into trouble because of truly horrible accounting. Back in 2014, it had to fire its chief financial officer and its chief accounting officer. There was a huge investigation. The company wasn't able to file financial statements, which is why you couldn't find any on Bloomberg.
The Stansberry Venture Value team – led by editor Bryan Beach – originally recommended Hanger shares last December...
As Porter noted, at that time the company had been off Wall Street's "radar" for years. Most investors had long since given up on the
When we first recommended Hanger, we already knew that the re-stated numbers for 2012 and 2013 only showed minor impacts to cash flows. The 2014-17 numbers, published after our recommendation, further demonstrated that it was still a healthy business, despite its "darkness."
Over the past several months, Hanger has been gradually "coming into the light"... refiling all its old financial statements. We expect the company to become "fully current" in its filings in September, at which point the company can re-list its shares on the NYSE and will likely begin a roadshow to reintroduce itself to institutional shareholders.
We think its shares will likely return to $30 or $40... or maybe even more... once the dust settles. And demand for prosthetic limbs isn't correlated to the S&P 500 or even to our country's economic growth rate. What we know about this business will matter to investors no matter what else goes on in the markets.
Last week, that's exactly what happened...
As the company announced in a press release on Wednesday morning...
Hanger, a leading provider of orthotic and prosthetic patient care services and solutions, today announced that the Company has received approval to relist its common stock on the New York Stock Exchange (NYSE) under the ticker symbol "HNGR" at the beginning of trading on Wednesday, September 12, 2018. The Company's common stock will continue to trade on the OTC until the market close on September 11, 2018.
Kudos to Bryan, Porter, and the Stansberry Venture Value team for the prescient call...
Hanger shares surged nearly 7% on the news to a fresh three-year high above $22.
The stock is now up more than 53% since their original recommendation last December – including more than 25% in the two weeks since Porter penned that Digest alone. But if Bryan and his team are correct, there's still plenty of
Another week, another 'trade war' escalation...
On Friday, the ongoing trade dispute between the U.S. and China heated up again, after President Donald Trump warned that additional tariffs on Chinese imports could be coming soon. As the Wall Street Journal reported...
President Trump said Friday that tariffs on another $267 billion in Chinese goods are ready to go and could be rolled out on short notice, reinforcing earlier threats and signaling no end in sight for the growing trade dispute.
Speaking aboard Air Force One en route to Fargo, N.D., Mr. Trump said the tariffs would be in addition to the tariffs on $200 billion in Chinese goods the administration has been preparing, which he said will "take place very soon, depending on what happens."
"I hate to say this, but behind that there is another $267 billion ready to go on short notice if I want," he added. "That changes the equation."
The White House has been gearing up to hit China with tariffs of 25% on as much as $200 billion in Chinese goods, on top of the $50 billion of Chinese exports already facing 25% levies.
If this third round of tariffs eventually comes to pass, it would bring the administration's total tariffs on Chinese imports to $517 billion. This is more than the total amount of goods the U.S. imported from China all of last year, and it's far more than China imports from the U.S. each year.
In other words, this round would far exceed China's ability to enact "tit for tat" tariffs of its own, as it has threatened in the past. But that didn't stop the country's leaders from warning once again that it would retaliate. As news
China will respond if the United States takes any new steps on trade, the foreign ministry said on Monday, after President Donald Trump warned he was ready to slap tariffs on virtually all Chinese imports into the United States...
"If the U.S. side obstinately clings to its course and takes any new tariff measures against China, then the Chinese side will inevitably take countermeasures to resolutely protect our legitimate rights," Foreign Ministry spokesman Geng Shuang told a regular briefing, when asked about Trump's warning.
While it's not clear how China would respond to this latest round of tariffs, it is clear why the country would be motivated to act. This third round would target China's mobile-phone industry for the first time, which accounts for more imports to the U.S. than any other.
Unfortunately, as we've discussed, these moves could have some unpleasant effects here at home, too...
You see, even if they're ultimately successful at persuading China to remove its own trade barriers – which is far from certain at this point – they could result in significantly higher consumer costs in the U.S. in the meantime.
In a letter to the Office of the U.S. Trade Representative last Wednesday, consumer-electronics giant Apple (AAPL) warned that the White House's proposed tariffs will punish consumers and result in higher prices for several of its products, including the Apple Watch, AirPods headphones, and Mac mini desktop computer, among others. From the letter...
Our concern with these tariffs is that the U.S. will be hardest hit, and that will result in lower U.S. growth and competitiveness and higher prices for U.S. consumers.
First, given the balance of Apple's economic footprint, the burden of the proposed tariffs will fall much more heavily on the United States than on China. The traditional method of calculating the U.S. trade balance attributes the entire value of our products to the country where final assembly is located, in most cases China. That calculation, however, does not reflect the immense value that Apple generates in, and returns to, the United States.
Every Apple product contains parts or materials from the United States and is made with equipment from U.S.-based suppliers. And every one of these products reflects the labor of 2 million U.S. workers across all 50 states, including our 80,000 direct employees, the 450,000 employees at our 9,000 U.S. suppliers, and 1.53 million U.S. app developers...
Second, because all tariffs ultimately show up as a tax on U.S. consumers, they will increase the cost of Apple products that our customers have come to rely on in their daily lives.
And no, suggesting that companies like Apple simply begin producing their products entirely in the U.S. is a not a viable solution to this problem...
That is in fact what the president himself tweeted in response to Apple's letter over the weekend...
Unfortunately, while a move like this would result in lower taxes for Apple, it would be little help for consumers.
According to new research from Bank of America Merrill Lynch this morning, if Apple shifted only its iPhone assembly process to the U.S., the higher labor and production costs would push retail prices up to 20% higher. And moving production entirely to the U.S. as the president suggested would push prices even higher still.
New 52-week highs (as of 9/7/18): Okta (OKTA) and Roku (ROKU).
In today's mailbag, three subscribers weigh in on the "esports" boom. What are you seeing out there? Let us know at feedback@stansberryresearch.com.
"I have 4 kids and 2 are boys. Both of them play Fortnite with their friends as much as we allow them too. I have tried to play, but my thumbs and fingers aren't fast enough, and I look like an idiot playing.
"Between the 2 of
"I bought Activision Blizzard when you recommended and sold it for a nice profit. In hindsight, probably should have held on to it. I may very well invest in this trend again because my money is agnostic.
"Call me old-fashioned, but I can't help but shake my head at what our world has become. Not only do people spend most of their time in front of a monitor, now they can actually get paid to do so. With the advances in virtual reality, etc., the need to interact with your fellow humans is becoming non-existent. And of course, studies are showing that all of this is making us less intelligent and unable to personally recall any useful information because we can just 'google' it. Sigh.
"No grandkids yet, but none of my kids became gaming experts. Dear old dad made them get outside to play in the sunshine. In any case, thanks for the good investment advice." – Paid-up Stansberry Alliance member Kirk H.
"Regarding the Sept 6, 2018 Digest: Ha ha ha! Alan Gula plays Fortnite and then bills the time to his employer for 'research.' Alan, you have the best job! Hang onto it. :-)" – Paid-up subscriber Richard C.
Regards,
Justin Brill
Baltimore, Maryland
September 10, 2018