Wed, Aug 14, 2013|Dr. David "Doc" Eifrig

Ackman steps down...

What's happening today with Bill Ackman is a valuable lesson for everybody.

You'll recall a couple weeks ago, I (Porter) explained what I don't like about Ackman. I don't like his hypocrisy in challenging Herbalife's business ethics while at the same time engaging in terrible behavior in regards to his other business dealings – namely raising a huge fund to buy one single stock and charging people tens of millions of dollars for the privilege.

That being said, if people want to be fools and give their money to Ackman, that's their business.

I'm not going to condemn the way he does business, but I do condemn the fact that he has set himself up as someone who is worthy of judging all other people's affairs. There's something unstable in that kind of public behavior. You have to be very, very careful about what you say about other people's businesses in public.

People spend their whole lives building up their business reputations, employing people, delivering quality to their customers... And when you attack that, you attack the nature of the free market and the choices people have made, and their life's efforts. I just find it very distasteful.

That Ackman was so eager and willing to do that in the case of Herbalife made me very uncomfortable. It was a sign that maybe he was not what he claims to be. And all the actions that have subsequently unfolded just reinforced my view. There's just something wrong with this guy. His behaviors and his choices are just very odd, destructive, and hurtful. He's lost the respect of many of his peers, deservedly so. Again, you have to be very careful about what you say in public about other people's business efforts... Very, very, very careful.

To come out and say Herbalife is a pyramid scheme – when it has been in business for 30 years and employs thousands of people in the country, and when it has millions of satisfied customers – that was way too far.

I've got plenty more thoughts on Ackman... And I'll share them with you in tomorrow's Digest Premium.

– Porter Stansberry with Sean Goldsmith

Why I would never give Bill Ackman a penny...

Porter has several problems with how Bill Ackman conducts his business.

In today's Digest Premium, he discusses those issues and why he thinks Ackman has gone too far.

To continue reading, scroll down or click here.

Why I would never give Bill Ackman a penny...

Porter has several problems with how Bill Ackman conducts his business.

In today's Digest Premium, he discusses those issues and why he thinks Ackman has gone too far.

To subscribe to Digest Premium and access today's analysis, click here.

Ackman steps down... This week in Digest Premium... Icahn sends Apple soaring... Big profits for Extreme Value... Gold stocks spike... You can't make everyone happy...

It's another bad day for billionaire hedge-fund manager Bill Ackman...

From a financial perspective, his short sale in supplement company Herbalife is moving against him. (Shares were up more than 2% as of midday trading today.)

Herbalife, as you may remember, is Ackman's very public short target... He called the company a "pyramid scheme." But the market disagrees...

Ackman took his $1 billion short position, then presented his thesis on stage in New York City last December. The stock fell from around $42 to $26 following the presentation.

Taking advantage of low prices, other hedge-fund managers – including Carl Icahn, George Soros, and Dan Loeb – went long Herbalife. They bet correctly... The stock is currently near its highs at $66 a share. Ackman's down around 60% on the short.

Then there's Ackman's activist position in retailer J.C. Penney...

We've written volumes on this situation (you can read more here and here). In short, Ackman took a large position in J.C. Penney, hired a new CEO, changed strategy, and failed. Sales fell, customers left, and the CEO – former Apple retail head Ron Johnson – was replaced by an interim CEO (Myron Ullman, who had the post pre-Ackman).

Oh, and the stock has cratered...

If Ackman were to sell his stock today (he owns almost 18% of the company), he'd lose around $500 million.

On Monday, Ackman stepped down from Penney's board. This followed his decision last week to leak two letters he wrote to the board about rushing Ullman's replacement. He believed the board was chatting behind his back.

Porter has already shared some great thoughts about Ackman in Digest Premium (which subscribers can read here and here). We had a great conversation about him yesterday... And why Porter believes Ackman is a hypocrite and would never give him money to invest. It's a rant you don't want to miss. We're sharing it with Digest Premium subscribers today.

Also this week in Digest Premium, Porter gives his entertaining take on our likely next Federal Reserve Chairman, Larry Summers – who Porter says is "waiting for transcript."

Porter also shares some of his favorite capital-efficient stocks you can buy today... And why buying and holding these stocks is the surest way to get rich in the market.

On to happier subjects... like Apple.

Shares of the consumer-electronics giant jumped nearly 5% yesterday after investing legend Carl Icahn announced he'd taken a large position in the firm (reportedly $1 billion).

Icahn, a 77-year-old man worth around $20 billion, shared news of his position through social-networking site Twitter, telling his 54,000 followers:

We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come.

(The Securities and Exchange Commission ruled in April that companies could disclose important operational information – such as a position in Apple stock – via social media, as long as the firm lets investors know information may come from social media.)

Icahn is urging Cook to pursue a large share buyback. He believes the company is worth $625 per share even without earnings growth.

Dan Ferris recommended shares of Apple in the June issue of his Extreme Value newsletter. He added it to his elite list of World Dominators. World Dominators are the No. 1 companies in their industries. They're consistently profitable, year after year. They gush free cash flow. And they pay a lot of that cash out to their shareholders.

And when Dan added Apple to the portfolio, he wrote...

In ways that count for rational, value-oriented, long-term investors, Apple is one of the safest stocks in the world today.

He said Apple was safe for two reasons – it had a lot of cash in the bank and there was a good margin of safety...

There's no substitute for a growing pile of cash in the bank. Apple has more cash in the bank than any non-financial company in the world, according to data compiled by Bloomberg. On its March 30 balance sheet, Apple reported about $145 billion in cash and securities. That was three months ago. It certainly generated billions more in excess cash since then...

The stock trades around $420 a share today. At that price, you get its iPhone and iPad businesses for around 8-10 times free cash flow (minus its enormous cash hoard of $145 billion)... and you pay nothing for its other businesses. You pay nothing for Mac desktop and notebook computers. You pay nothing for iTunes movies, music, and books. You pay nothing for the App Store, iPod, iRadio, or any other part of Apple. That's too cheap. As a cash-gushing, brand-name company, Apple is worth more than its current share price.

Apple is up another 2% today to more than $500 a share – its highest share price since January. Extreme Value readers are already up nearly 15% on the position. And if Dan and Icahn are correct about Apple's future prospects, the upside is massive from here...

Gold is up $11 an ounce today to $1,331. And gold stocks, as measured by the Market Vectors Gold Miners Fund (GDX), jumped more than 5%.

We've been writing lots about the recent turnaround in gold stocks... You can catch up on them here, here, and here.

New 52-week highs (as of 8/13/13): iShares Germany Fund (EWG), Fission Uranium (FCU.V), SPDR Euro Stoxx 50 (FEZ), Loews (L), Marvell Technology (MRVL), Qlik Technologies (QLIK), ProShares Ultra Technology Fund (ROM), Sequoia Fund (SEQUX), Constellation Brands (STZ), and short position in iShares Barclays 20+ Year Treasury Fund (TLT).

In today's mailbag, more tips on handling police officers. Send your praises and grievances to feedback@stansberryresearch.com.

"[On the topic of] don't talk to cops, a wonderful YouTube video tells you why you should decline comments without your attorney..." – Paid-up subscriber Craig Weber

Regards,

Sean Goldsmith
Miami Beach, Florida
August 14, 2013

Why I would never give Bill Ackman a penny...