Big news from one of Porter's top recommendations...
Big news from one of Porter's top recommendations... Why Icahn is still buying Apple... Biggest calls from Ira Sohn... What David Einhorn is shorting now... The next step in 'currency wars'...
McDonald's
Regular Digest readers know the company has struggled of late, with same-store sales down in each of the past four quarters (and six consecutive quarters in U.S. restaurants). As we mentioned last month, McDonald's reported plummeting first-quarter revenues (down 11%) and profits (down 30%).
On Monday, the newly appointed
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Easterbrook also noted the implementation of a company-wide reorganization into four separate divisions: the U.S. (which comprises more than 40% of the McDonald's income), international lead markets (including Canada, France, Germany, the U.K., and others), high-growth markets (including China, Italy, Russia, Switzerland, and others), and foundational markets (approximately 100 other countries).
These two moves, Easterbrook said, could save the company up to $300 million a year. And according to the Economist, the company also plans to return up to $9 billion to shareholders in 2015.
In his first few months at the helm, Easterbrook has worked to get McDonald's back on track. Under his watch, the company has simplified its menu and tested all-day breakfast and customizable menu options in select markets. The company is also aiming to eliminate human antibiotics from its chickens by 2017. In last month's Stansberry Radio Advisory Roundtable episode, Porter and his research analysts discussed the company and a move that Porter thinks would be wise to make today...
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Porter's "bottom line" for investors was clear...
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Speaking of blue-chip companies, billionaire activist investor Carl Icahn is still bullish on consumer-products giant Apple.
Appearing recently on the Wall Street Week television program, Icahn explained his bullish stance...
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Icahn first established a large position in Apple back in August 2013, claiming the company was worth a split-adjusted $89 per share. At the time, Icahn bought $1 billion worth of shares when they traded around $65.
Today, shares trade around $124. Icahn added to his stake early last year and noted in February that he owned more than 50 million shares – a total value of around $6.2 billion. Despite more than doubling over the last two years, Icahn says Apple's share price is "absurd." Back in February, he announced a price target of $216 per share.
Icahn also used his appearance on Wall Street Week to praise CEO Tim Cook following the company's recent blowout earnings report.
Icahn wasn't the only big name making news this week...
A handful of other well-known investors were in New York City for the Ira Sohn investment Conference. Every year, some of the world's best investors gather to share their latest investment ideas to raise money for pediatric cancer.
And some of their recommendations will sound familiar to Digest readers...
Hedge-fund billionaire David Tepper – best known for his bullish "Don't fight the Fed" call on stocks in 2010 – is still bullish.
Back then, Tepper famously said, "What, I'm going to say, 'No Fed, I disagree with you, I don't want to be long equities?'"
This week, he noted that it's not just the Federal Reserve easing now. The central banks in Europe and Japan have since joined the Federal Reserve with their own easing programs, and – as we've been reporting – China could soon join the party. Said Tepper, "If it's hard to fight the Fed, it's even more difficult to fight four Feds."
Tepper echoed the thoughts of our own Steve Sjuggerud and recommended going long Chinese stocks. He also agrees with Steve that Hong Kong stocks are incredibly cheap today. As Steve noted in the April 21 issue of DailyWealth...
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Tepper thinks China's quantitative easing could set off a big rally in commodities, too. "You've got to think about what that's going to do to things you own," he said.
He is also still bullish on U.S. stocks. "Something has to give in stocks," he noted. "Either stocks have to go up a hell of a lot, or Treasurys are going to go down a hell of a lot."
In another notable presentation, "Bond God" Jeffrey Gundlach – the founder of DoubleLine Capital who is best-known for his skill in interest-rate trades – said U.S. interest rates have bottomed.
He also reiterated his warning on high-yield (aka "junk") bonds, saying, "No one in this room has lived through a secular interest rate rise in high-yield bonds."
But the biggest news of the day came from David Einhorn of Greenlight Capital...
Einhorn is probably best-known for correctly predicting the collapse of Lehman Brothers. He is generally considered one of the smartest hedge-fund managers on Wall Street.
Einhorn is short Pioneer Natural Resources, one of the leading U.S. shale oil companies. These companies are also called "frackers" because of the hydraulic fracturing ("fracking") technique they use to produce oil.
Einhorn is particularly bearish on Pioneer – calling it the "motherfracker" – but is bearish on shale oil companies in general. As he explained, "None of them generated excess cash flow, even when oil was at $100 a barrel."
He singled out Pioneer as "dramatically overvalued," saying that "Pioneer burns cash... Why is the market paying $27 billion for this company?"
Einhorn also mentioned EOG Resources, Concho Resources, Whiting Petroleum, and Continental Resources as some other examples of companies "that spend too much money and generate too little cash."
Shares of these companies are down 5%-10% since Einhorn spoke on Monday.
"I tend to think he's wrong."
We reached out to one of our best contacts in the oil and gas industry – Texas wildcatter Cactus Schroeder – to get his thoughts on the matter...
While Cactus agrees the numbers for most frackers don't look great, he thinks Einhorn's short of Pioneer Resources in particular could be a mistake...
First, Cactus sees Pioneer and a handful of other companies as prime takeover targets.
The big oil majors – like ExxonMobil – are flush with cash right now. At some point, they're likely to start scooping up the best frackers with the best acreage... and Pioneer Resources has some of the best acreage in both the Eagle Ford Shale and the Permian Basin.
But even if that doesn't happen, Cactus sees some positives...
Oil-services companies – the companies that provide the "picks and shovels" needed to produce oil – are a major expense for many frackers. And the prices they're charging are still reflective of much higher oil prices. Sooner or later, oil-services companies will be forced to align their pricing with a lower price of oil.
Once this happens, Cactus thinks some of the better companies could do well.
But Pioneer is even better off... The company owns its own sand mine and pumping equipment, so it's not at the mercy of oil-services providers like most other companies.
Regarding Einhorn's assertion that Pioneer is "burning cash," Cactus agrees, but pointed out that investors also need to look at how much it has increased reserves recently. The company was spending a lot of money to increase reserves, but is now bringing costs under control. It won't be drilling as much while oil prices are low, but its proven reserves are still high.
But, like Porter, Cactus agrees that many frackers – those without great acreage and with too much debt – are likely in big trouble. As Porter mentioned in the March 13 Digest...
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Einhorn, Porter, and Cactus aren't the only big names who are worried about the oil industry today...
Regular Digest readers are familiar with currency expert Jim Rickards. In fact, thousands of you took us up on our offer to get a copy of his "must read" book, The Death of Money.
Jim is now writing a newsletter for our colleagues at Agora Financial... and believes the next step in the "currency wars" we've discussed at length will strike the oil industry.
As Jim recently explained to his subscribers...
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He believes recent actions by the Fed – which have sent the dollar soaring versus the price of oil – will spell disaster for many oil companies.
But, as he explains, it's actually a good thing for a small group of investors who are using his proprietary new "IMPACT" trading system. He says using this system would have led to 530% gains in less than eight months from the dollar's move... 848% in less than seven months from the euro... and nearly 2,200% in just 10 days from the Swiss franc.
You can learn more about Jim's proprietary trading system in a presentation he recently put together, right here. (You won't have to sit through a long promotional video.)
New 52-week highs (as of 5/5/15): short position in Yelp (YELP). Another day of incredible feedback from Porter's request on Friday. We're touched that so many of you took the time to reach out. If you haven't written to us yet, please drop us a line at feedback@stansberryresearch.com. "Porter, I have learned so much, I am not sure were to begin. From some of the many monthly letters and their historical perspective to the many Friday 'rants' that are both entertaining and thought provoking. I feel like I have evolved as an individual. My biggest problem is trying to keep up with the many recommendations and trying to stick with certain themes. I wish I had more time to study and learn, but I also have to work and chase my 3 kids.
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"Steve's steady, cool hand in particular has guided me through all the market turmoil and kept me invested and allowed me to prosper. Yes, I have had some losses, but a predetermined exit strategy (trailing stops) kept those losses small. Both Steve and Doc espouse the belief that is possible to make significant returns without assuming significant risks. Their belief is not based on a whim, since they have the track records to back up that belief. You have assembled a great team. This 'novice' investor appreciates it!" – Paid-up subscriber Dale Wiscaver
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Regards,
Justin Brill
Baltimore, Maryland
May 6, 2015
