Buffett is still bullish on our World Dominator...

Buffett is still bullish on our World Dominator... Big news for biotech... More new highs for Steve Sjuggerud's subscribers... 'Perfect' stocks plunge...

 Investment legend Warren Buffett is still bullish on Extreme Value World Dominator IBM.

Speaking Saturday at the 2015 Berkshire Hathaway annual shareholders meeting, Buffett said he bought "maybe 3 million" more IBM shares during the first quarter of the year.

As we noted in the February 18 Digest, Buffett's holding company, Berkshire Hathaway, started buying more IBM shares after the stock fell to less than $160 following its January earnings announcement.

According to Buffett's numbers, the company now owns more than 79 million shares, making IBM his third-largest holding. Berkshire now owns more than 8% of IBM... a stake worth more than $13 billion at today's share price.

 Some shareholders questioned the move...

One attendee asked if IBM was a "cigar butt" company... referring to one of the biggest mistakes Buffett made early in his career. Porter explained this mistake in the October 10 Digest...
 

Most people don't know the most important and most basic fact of Buffett's investment career. He began his career in the 1950s and early 1960s as a deep-value investor – someone who looked for stocks trading well below their net asset value (book value). His original strategy was to buy the cheapest stocks and find a way to liquidate his holdings at a fair market value.

Porter went on to explain that Buffett used the metaphor of finding a cigar butt on the ground to describe his method in his 1989 letter to shareholders. Quoting Buffett, he wrote...
 

If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the "cigar butt" approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the "bargain purchase" will make that puff all profit.

As Porter noted, this approach frequently caused Buffett problems, especially as his operations grew and he began to take control of companies...
 

After that point, his strategy proved to be far too cumbersome and risky. Selling the assets became difficult or even impossible. Again and again, he found himself "trapped" with low-quality assets that he couldn't sell for any price.

 Buffett's business partner, Charlie Munger, said that belief is wrong. He pointed out that IBM "totally dominated punch cards" – a reference to the company's business in the early days of computing – but has adapted and reinvented its business as technology has changed.
 

Buffett and Munger believe IBM will adapt again, and the latest evidence suggests they're right...

As Extreme Value research analyst Mike Barrett told us last week in the April 27 Digest, IBM is still considered an old, stodgy tech company. But it's quietly transforming into a cloud-computing products and services company...
 

IBM's cloud revenue is larger than either Microsoft or Amazon, something that might surprise folks who think of IBM as being late to the cloud game. Its cloud services were particularly impressive: Revenues were up 153% to $3.8 billion year-over-year. By 2018, IBM expects to generate 40% of its revenue from products and services in five fast-growing sectors: data, cloud, social, mobile, and security. Last year, these five categories accounted for 27% of IBM's revenue. In 2011, they accounted for just 15%. Remember, major business transformations don't happen overnight, even for companies a quarter of IBM's size. From our vantage point, though, IBM has made considerable progress upgrading its revenue mix. Each quarter, we're looking for these emerging businesses to deliver the results management has told us to expect. And so far, that has been the case with IBM.

When the same attendee asked why most investors don't believe this, Munger simply said, "If people weren't often so wrong, we wouldn't be so rich."

 Buffett also reminded attendees how well IBM treats its shareholders...

He said share buybacks can be "extremely smart or extremely dumb," depending on whether the company is buying shares back for less or more than they're worth. He said it's a simple idea... but one many companies get wrong.

Buffett said IBM is one of the few that gets it right. The company has been buying back shares at good prices for a decade. More importantly, he also noted that while the company has reduced its share count, it has also "practically eliminated" stock options.

This combination, Buffett says, is "enormously beneficial" to shareholders. He pointed out that Berkshire's stake in the company is up about 15% due to share buybacks alone.

 Extreme Value editor Dan Ferris shared his latest thoughts on IBM in today's weekly update...
 

We don't recommend IBM just because Warren Buffett likes it. We recommend it because it's the No. 1 IT-services firm on Earth. It has been granted more U.S. patents than any other organization for 22 years in a row – more than 20 new patents per day. It dominates corporate computing in the U.S. It's rapidly growing five new strategic businesses as the market for computing changes (which is what it has always done).   And of course, IBM nails the Five Essential Financial clues... It gushes free cash flow, rewards shareholders with buybacks and dividends, has a great balance sheet, earns consistent (and thick) profit margins, and consistently generates high returns on equity. A few years from now, everyone will look back and wonder why IBM was a controversial stock.

As we've mentioned before, IBM is the only Extreme Value World Dominator in "buy range" today... and the world's greatest investor is still taking advantage of it.

 Good news for Stansberry Venture subscribers: Spending on cancer treatment hit a record-high $100 billion last year.

According to the IMS Institute for Healthcare Informatics, that's a 10%-plus rise from 2013... and up more than 33% since 2009. As CNBC noted...
 

Earlier diagnosis, longer treatment duration, and increased effectiveness of drug therapies are contributing to rising levels of spending on medicines for cancer care. Measures of value continue to be tested by payers and providers who, in some health systems, most notably the U.S., have growing concerns about the financial burden faced by cancer patients.

Editor Dave Lashmet has loaded his Stansberry Venture portfolio with small-cap biotech stocks that will reap huge rewards as this long-term megatrend continues.

As of yesterday's close, his first three biotech recommendations had already doubled... up 126% in less than six months, 149% in five months, and 186% in four months. It's one of the most impressive early track records we've ever seen.

 Another day, another note of congratulations for Steve Sjuggerud and his True Wealth subscribers.

Late last year, Steve called Chinese stocks "the best chance for 100% gains in the next two years." So far, his prediction has played out almost perfectly.

The Deutsche X-trackers Harvest China A-Shares Fund (ASHR) is up 96% since September. The Guggenheim China Real Estate Fund (TAO) is up 23% since August. In his True Wealth Systems advisory, the Global X China Financials Fund (CHIX) is up 27% since January.

And as you'll notice at the end of today's Digest, those three recommendations closed at new 52-week highs yesterday.

 Last week, we highlighted the blowout earnings in Big Tech, specifically software giant Microsoft and consumer-products behemoth Apple.

But earnings season wasn't as rosy for social-media companies...

We already saw this play out in online-review site Yelp, whose shares fell nearly 25% in a single trading session after reporting slowing user traffic and missing revenue estimates.

Last week, social-networking site Twitter and business-focused social-networking site LinkedIn suffered the same fate.

 Twitter lowered its second-quarter sales forecast. It now expects sales of $470 million to $485 million in the second quarter, significantly lower than analyst estimates of nearly $540 million.

The company also announced that revenues, while up 74%, fell short of analyst estimates. It lowered its full-year revenue guidance – which was previously $2.3 billion to $2.35 billion – to $2.17 billion to $2.27 billion.

It also reported first-quarter losses of $162 million, up from $132 million in the same period a year ago. Shares plummeted 18% last Tuesday before trading was halted for the day.

 Things weren't much better for LinkedIn, whose second-quarter sales projections and annual revenue guidance were lower than analysts expected.

Analysts predicted the company's second-quarter revenue would come in around $720 million. But LinkedIn says that number will be closer to $670 million or $675 million. It also slightly lowered its revenue forecast – from $2.93 billion to $2.95 billion – to $2.9 billion.

Shares plunged 19%... the biggest one-day drop since the company went public four years ago.
 

 Longtime Digest readers know we've been warning about the insanely high valuations of these companies. This is what happens when stocks are priced for perfection. If the company reports anything other than a "perfect" quarter, investors get crushed. We saw the same thing play out with 3D-printing firm 3D Systems last quarter.

Investors in other "perfect" stocks (like electric-car manufacturer Tesla) beware.
 

Now Hiring – Brilliant Stock Market Junkies Who Want to Get Rich Stansberry Research is hiring researchers for DailyWealth Trader.   DailyWealth Trader is one of the world's most popular investment and trading services. Since its founding in 2012, it has provided readers with an extraordinary number of profitable recommendations and timeless education. We're going to do a lot more. And we'd like to pay you or someone you know to help us do it. We're looking for brilliant, hard-working people who love trading and investing to join our team. We need people who live and breathe the financial markets. The ideal candidate is a voracious reader and learner. Formal experience is preferred, but may not matter, depending on the candidate. We're located in a beautiful beach town in South Florida. The position will be full-time and on-site. If you're not hard-working and curious, don't apply. If you don't love the subjects of trading, finance, and investment, don't apply. We are only interested in people who are genuinely passionate about the stock market and serving individual investors. The right people will work with other intelligent, like-minded people and have the chance to make millions of dollars over their careers. If you're interested, please send us:   •   A writing sample. Tell us about an investment or trading opportunity. We're interested in the fundamentals of your best idea, not something based solely on charts.   •   A basic resume. Tell us what you've done before. We admire people who aren't afraid of hard work or odd jobs.   •   Your income requirements. While the positions are entry level to start, the right candidates will have the opportunity to make millions of dollars over their careers with us. No other information is necessary. Send us an e-mail with the subject line "Joining the DailyWealth Trader team" at dwt@stansberryresearch.com. If you think someone you know would be a great addition to DailyWealth Trader, please forward them this letter. It's the chance of a lifetime.

 New 52-week highs (as of 5/4/2015): AllianceBernstein (AB), Deutsche X-trackers Harvest China A-Shares Fund (ASHR), Blackstone Group (BX), Global X China Financials Fund (CHIX), and Guggenheim China Real Estate Fund (TAO).

 In the mailbag, more subscribers respond to Porter's request on Friday. Please send your thoughts – good or bad – to feedback@stansberryresearch.com.

 "Hello Porter, 'It will take two minutes' maybe to write the email but a lot longer to think through how Stansberry and my Alliance membership have enriched my life. After much thought I would say using stop losses and your teaching me about selling naked puts had the biggest impact on my results. There is so much more that I am thankful to you for but those are two of the main reasons for my improved results.

"I would, and do recommend people read your newsletters so they can learn how to achieve above average results in the market. I know your advice works and I tell people. One other thing, I took finance and my MBA back in 1978 [and] almost everything I learned back then was wrong. Thank you." – Paid-up subscriber Neil

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"So, here I was in 2010. I had no clue what to do with my money so I started to study and read. I also made a lot of mistakes. A couple years later, I responded to an Internet ad and subscribed to Stansberry's Investment Advisory. Soon, I was a subscriber to most of Stansberry's publications (I am now an Alliance member) and my investments are doing fine. I sleep well knowing I understand my investments, how to structure them, why I am getting into specific investments, and when to get out.

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Regards,

Justin Brill

Baltimore, Maryland

May 5, 2015