Thu, Aug 8, 2013|Sean Goldsmith

Gold stocks boom...

Gold stocks boom... Microsoft's big day... Why the market is wrong about Microsoft... Tesla announces earnings, hits all-time high... More great feedback for DailyWealth Trader...

In yesterday's Digest, we told you… "Gold stocks appear to be turning the corner."

And today… they soared.

The price of gold jumped more than 2% to $1,312 an ounce. And the Market Vectors Gold Miners Fund (GDX), which holds a portfolio of major mining stocks, jumped more than 8%. The Market Vectors Junior Gold Miners Fund (GDXJ), which focuses on more volatile small-cap miners, was up 9%.

One stock we specifically discussed yesterday, Barrick Gold – the world's largest gold miner – was up nearly 10%.

It's not too late to get into gold stocks. As you can see from the chart below, GDX is still down more than 50% from its 52-week highs. And the gold price is still well below its 2011 highs of $1,900 an ounce.

As True Wealth editor Steve Sjuggerud says, the big money is made when things go from "bad to less bad." And that's starting to happen in gold stocks.

The sector has been ridiculously oversold. As we pointed out yesterday, gold stocks are at a 12-year low when compared with the price of gold...

The ratio was at its most extreme in November 2000. After that ratio was reached, gold miners soared 435%. In 2008, another extreme point was reached. Gold miners soared more than 150% in the next 12 months.

You have a true opportunity to make triple-digit returns in gold stocks today. And if you'd like to get started, we'd recommend a subscription to the S&A Resource Report, written by our commodities expert Matt Badiali.

You can try his service for only $39 for an entire year. And if you don't like it, we offer a four-month 100% refund. You've got nothing to lose... and the potential for triple-digit upside.

Plus, in Matt's latest issue, which we published last night, he analyzes the current state of the gold market... And he recommends his two favorite mining companies to buy right now.

You can learn more here...

Elsewhere in the market, shares of Microsoft jumped more than 3% today. A large shift from the market action last month...

On July 19, shares of the tech giant fell nearly 11% after the company announced disappointing earnings. It missed expectations on revenue and earnings and took a $900 million charge relating to its Surface tablet.

We knew the market was overreacting to the news. And in the July 22 Digest, Extreme Value editor Dan Ferris commented on Microsoft's big drop...

People think Microsoft is about consumer products. That's wrong. It's about selling software to businesses. Microsoft's Server & Tools division – which caters to businesses, not individuals – contains at least five businesses with more than $1 billion in sales. At least two are growing at double-digit rates. Microsoft is using subscription-based business models to make Office and other products "stickier." Microsoft Office consumer sales fell 27% last quarter... and the division sales still rose 7%.

I've seen the stock market make a lot of mistakes, but pushing Microsoft down 11% on Friday based on last week's report is one of the worst.

The market is down on Microsoft because PC sales are declining as people shift to mobile computing (smartphones and tablets). Many investors think Microsoft's most popular product, Windows, may become obsolete.

But as Dan pointed out, Windows hasn't been Microsoft's No. 1 source of sales or profits for three years. And if you took Windows away from Microsoft, the company would still generate $20 billion in operating income (adjusted for its share of corporate-level expenses)... and trade at a ridiculously cheap multiple.

In his latest issue of Extreme Value, Dan debunks the overblown fears surrounding Microsoft more completely. We excerpt a small, but important, portion here:

The Wall Street Journal and investment bank Goldman Sachs seem to think PC users – individuals and small businesses – are Microsoft's primary customers. And they're betting Microsoft will fail because of the growing popularity of mobile-computing devices among individual consumers. That's not true.

Microsoft makes more money selling to big businesses than to all other customer types combined.

Shares of Microsoft are up about 5% since the earnings disappointment... And they're still a bargain.

Now that we've discussed a wonderful business in Microsoft… let's take a look at one we're not so crazy about...

Shares of electric-car manufacturer Tesla jumped nearly 15% to an all-time high today after the company announced earnings that beat expectations.

We've long questioned Tesla's high and gaining share price. At current prices, the company trades at a forward price-to-earnings ratio of 156 and 91 times book value. However, we never recommended shorting the stock... It was already one of the most popular shorts in the market, which makes borrowing shares difficult and risky.

Here's what we wrote about Tesla in the May 24 S&A Digest Premium:

You'll recall that we like to short stocks for three reasons: We short stocks that we believe are "frauds;" we short stocks whose products we believe are obsolete; and we short stocks that have an unsustainable debt loads. In Tesla, we sort of have the trifecta.

First, I believe Tesla's cars were obsolete before the first one ever rolled out of the factory. What I mean is, I believe these cars will have zero resale value, because after five years their batteries will be dead... completely dead and not usable.

Now, the CEO has famously promised to provide a situation where you can lease the car and let the company take on the liability for its long-term value. That's extremely risky.

I also think this car is obsolete because it's impossible to use it in the way that most people would use a large, fast road car. You can't drive the thing from New York to Florida because you have nowhere to recharge the battery. And even if you did, it would take too long.

I don't have any idea how an electric charging station would work, either... It takes a long time to recharge these cars. So I don't know how it could ever become something that you could do on the road or on the fly. It just doesn't make any sense.

As for its debts... It's hard to say what an insurmountable debt load is for a company that doesn't have any real profits. But Tesla has plenty of debt no matter how you measure it. It's doing an equity offering to pay off the $400 million it owes the government, which is a sign that it's not really able to afford its debts.

Is Tesla a "fraud"? Now remember... This criterion is not necessarily about a fraud in the legal sense. And we aren't implying an actual crime is being committed. (Though when you can find evidence of an actual, legal fraud – that's a great situation to short.) We mean this more generally... that a company is being sold as something more than it is.

In Tesla's case... two weeks ago, Tesla CEO Elon Musk, who is a celebrity playboy type, said on his conference call with Wall Street analysts that Tesla had no plans to raise any additional debt or equity. And he said that Tesla will be profitable on its operating basis going forward.

Two weeks later, the company announces a huge debt-in-equity issuance. Again, I'm not accusing him of doing anything illegal. But if that's not talking out of both sides of his mouth... I don't know what is.

And we're not the only researchers questioning Tesla's current valuation...

Following Tesla's earnings announcement, Goldman Sachs increased its six-month price target for the company to $95 from $84.

You may notice, that's well below Tesla's current share price of $153. The analyst covering Tesla for Goldman, Patrick Archambault, doesn't think Tesla is worth more than $95 a share, even under an optimistic scenario.

He wrote in a note to clients that optimistically Tesla could capture 3%-3.5% of the market for luxury and "mid-luxury" cars. That works out to about 200,000 cars a year. He writes:

We assume an operating margin of 15.6% in this scenario as we see TSLA benefitting from better operating leverage given higher volumes. The implied stock price in this scenario comes at $125. We also value Tesla in a mid-case where we assume volumes of 150,000 units and operating margins of 15.5%, which is broadly the mid-point of the two scenarios. The implied price in this scenario is $93. Finally, we take the average of these three scenarios to get our six-month target price of $95...

Still… even though Tesla is absurdly expensive on every metric, we're still not advocating a short position. These popular stocks can always go higher.

In today's mailbag… subscribers write in praise of Dan Ferris and DailyWealth Trader. It's a bull market, you know… Send your comments to feedback@stansberryresearch.com.

"Ferris, thank you for pointing out that MSFT has 16 businesses that do a BILLION or more in annual sales. I understand, from my daughter-in-law who works for [Procter & Gamble] that they have over 20 businesses that do over a billion a year in sales... Pampers, Crest, etc. For MSFT to do that (!) and be in just one sector of the market is almost unimaginable. Great company." – Paid-up subscriber J. Frank

"I would like to give you folks an 'attaboy'. I am new at options, and DailyWealth Trader has made my first month an amazing experience. I look forward to every letter, and constantly go over the education material. Thanks." – Paid-up subscriber Tim Baranski

Goldsmith comment: We continue to receive glowing feedback about DailyWealth Trader, the daily trading service written by co-editors Amber Lee Mason and Brian Hunt. Since launching last year, DailyWealth Trader has become one of our most popular products... It's in large part because we've dedicated a huge amount of time and resources to creating exclusive, educational material for DailyWealth Trader readers.

And Brian and Amber consistently provide safe and profitable trading ideas, like selling put options on large, cheap tech stocks.

If you're an active trader, or you simply want to improve your trading skills, DailyWealth Trader is the perfect companion. You can learn more about the service… and one of Brian and Amber's favorite wealth-generating ideas… for free, by clicking here...

Regards,

Sean Goldsmith
Baltimore, Maryland
August 8, 2013

Porter's take on Trayvon Martin...

You may have seen President OBAMA! comment after the judgment in the Trayvon Martin trial... He said "Trayvon Martin could have been me 35 years ago." (He'd previously said, "If I had a son, he'd look like Trayvon.")

Those comments disparage the jury's decision. And it's a big mistake for the sitting president to comment on a criminal case in that way. If you're the president of the United States, you have to have faith in the legal system. You have to publicly support the legal system, even when you don't agree with the judgment made by a specific jury. So I think Obama is doing a bad job of being a political leader in that regard.

On a deeper level, it's a mistake to hold out Martin as an innocent victim in this scenario. There is no question according to the witnesses and evidence that Martin was involved in a physical altercation with George Zimmerman. And we don't know the circumstances of that, except Zimmerman was fairly well beaten up.

So it seems that Martin did something to warrant a defensive response from Zimmerman. And the laws of Florida state pretty clearly that you're allowed to defend yourself with deadly force... So that's why the jury found Zimmerman not guilty.

Now, I think it's OK, by the way, for political leaders to object to the "stand your ground" laws. But I don't think it's wise for you to try to make a paragon out of Martin because he is far from innocent in this case.

You give up too much moral authority when you try to turn someone who's far from innocent into a "cause." A lot of Americans are tired of listening to politicians try to make paragons out of questionable characters. I would point to the Tawana Brawley case as an example.

Martin is so far from the March to Selma, Rosa Parks, Martin Luther King, and the legitimate challenges that the Civil Rights movement faced in the '60s and '70s. To take that kind of moral authority and expend it defending somebody who just got into a fight with the wrong guy is idiotic.

– Porter Stansberry with Sean Goldsmith

Porter's take on Trayvon Martin...

In today's Digest Premium, Porter tackles the hot-button issue of the Trayvon Martin case. You don't want to miss it...

To continue reading, scroll down or click here.

Porter's take on Trayvon Martin...

In today's Digest Premium, Porter tackles the hot-button issue of the Trayvon Martin case. You don't want to miss it...

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