A few highlights from the first morning at the Value Investing Congress (VIC) in New York and yesterday's pre-Congress workshop...
Yesterday, workshop co-host Whitney Tilson said now is a great time to be an investor. You can find lots of high-quality companies on the long side (a theme I've built upon over the last few years), and lots of overvalued, poor-quality businesses on the short side.
Among longs, Tilson likes World Dominating franchises like Microsoft (MSFT), Anheuser-Busch InBev (BUD), and Automatic Data Processing (ADP). Tilson's partner, Glenn Tongue, showed us how ADP could afford to sell low-yielding debt and buy back its higher-yielding stock.
Finding high-quality businesses with great balance sheets is a strong theme among smart investors right now. (Of course, I say they're smart... I've been beating this drum for a couple years!) Even John Burbank of Passport Capital, the macro investor's macro investor, says he owns shares of Microsoft, ExxonMobil (XOM), Nestle (NESN), and Kraft (KFT). Burbank said something I've heard many times from seasoned money managers: "I always know I'm onto something when my investors say I'm doing something wrong."
Lee Ainslee of Maverick Capital also likes high-quality companies, but he's more partial to technology stocks. He says technology is the only sector of the S&P 500 that gets more than half its revenues from overseas. CommScope (CTV) is his favorite right now. It makes hardware for wireless and cable communications markets.
Ainslee said stocks in general are attractive because free cash flow yields on equities are higher compared to corporate bonds than they've been since 1957. Ainslee said Maverick owns Dell (DELL), Amdocs (DOX), Hewlett-Packard (HPQ), and Marvell Technology Group (MRVL).
John Burbank also said he thinks gold is a must-have investment. Central banks aren't sellers anymore, he said. Now, they're going to have to buy and keep buying. Burbank's a long-term guy. Our own Jeff Clark is a short-term guy, a trader. He recently nailed a contrarian gold trade...
Last week, in the midst of a huge bull market in gold (gold stocks were up 20% in two months), Jeff noticed the metal's "first sell signal this year." One of Jeff's favorite indicators signaled gold was overbought and ready to turn lower. Jeff is bullish on gold long term. He just predicted a short-term profit opportunity.
Jeff recommended buying puts on one of the world's largest gold-mining companies. As he predicted, the gold market turned lower. Jeff's puts are up nearly 42% in one week.
In his latest issue, published today, Jeff makes an equally bold call. He says the biggest currency trade in the world right now (the most popular way for institutional money to bet on a second round of quantitative easing) is wrong... Eventually, Jeff says, this trade will work out, but he sees a short-term profit opportunity – just as he did with gold. Jeff saw a similar setup last August, and Short Report readers made 85% in three days. He thinks the latest currency trade will produce even better results. To sign up for Short Report, which we're currently offering at a generous discount, and access to Jeff's latest trade, click here...
When it's not finding new ways to invade our privacy while working for the government, Google apparently likes to dabble in pure, worthless B.S....
Google's chief economist, Hal Varian, says he's working on the "Google Price Index" (GPI). It's culled from economic data, gathered rapidly on the Internet. The GPI is still a work in progress, and it's not clear if Google intends to ever publish it. But Varian told a group of economists the GPI is showing a "very clear deflationary trend," according to a front-page article in this morning's Financial Times.
Naturally, the GPI is showing a "very clear deflationary trend." Gold is $1,350. Corn is making new highs (again!). But Google says prices are falling. And Google is the smartest government employee in the world, so it must be true.
New highs: Anheuser-Busch InBev (BUD), DirecTV (DTV), Penn Virginia Resource Partners (PVR), Barrick Gold (ABX), iShares Silver (SLV), Enterprise Products (EPD), Kinder Morgan Energy Partners (KMP), ConocoPhillips (COP).
Our friend Cactus' success in the Eagle Ford grabbed some subscribers' attention... others have questions about managing their accounts. Send your questions to feedback@stansberryresearch.com.
"I read something on the bottom of one of your letters a while back and had a quick question. Is it correct to place my 25-50% trailing stops within the online accounts, or to just keep a record of the current price over the original, so as to manually sell my shares in the event the stocks exceed the downward trailing stop? ie. Let the brokers automatically enforce the stops vs keeping my own records and manually selling the shares. Thank You." – Paid-up subscriber Ron
Goldsmith comment: You never want to enter your stops into the market... That just makes it easier for a market maker to pick you off.
"'You' have reccomended a number of Eagle Ford investments, which I have in my account. I do not recall reading about the company which Statoil has purchased. Are the remainder still on your buy/hold list? Perhaps an update on EagleFord is appropriate." – Paid-up subscriber Harrison Kornfield
Ferris comment: The company our friend Cactus owns, which Statoil acquired for $1 billion, isn't a public company.
"Gentlemen, i stand corrected...recently i sent an e-mail deriding Cactus, doubting there was anyone by that name. Thought it was a monicker you dreamed up to hype Eagle-Ford. I still own HK, and while its the worst performer it appears you'll be right about that play...i hope so.
"PS: so all is not negative i made some good money on Western Digital... thanks" – Paid-up subscriber RB
Ferris comment: No need to apologize. Your instinct for B.S. misguided you this time. But overall, you should continue to honor it. It will serve you well.
"I gotta tell you, Dr. Steve's new True Wealth Systems sounds like it's exactly what I've been waiting for. I've kept a journal of his 'simple systems' over the last few years, and even kept track of their current signals. I remember thinking, 'Gee, wouldn't it be great to have something like this for every asset class?'
"I even wrote to your Penny Trends author twice in the last year to ask that he publish the entire list of assets he ranks every week (as measured by ETFs) so we could see which ones are starting to move up. As I've gotten more gun-shy about individual stocks, I find myself steadily moving into other more generalized asset ETFs and trying to 'shrink' the number of trading possibilities.
"I've taken to heart what you guys have taught us: 'Become a connoisseur of extremes.' And I know this service will keep close track of that – and be all over things like sector rotation. I'm very much looking forward to the beta version of Dr. Steve's new service – and although I'm not rich, I genuinely feel that the knowledge I've gained through my Alliance membership gives me a real fighting chance to get there." – Paid-up subscriber Peter Cavaliere
Ferris comment: Be careful with ETFs. They're riskier instruments than most investors acknowledge. Make sure you know what they hold before you buy. But you're right about extremes. That's where big money is made... and lost. As long as you have some system of risk control that works, you should do well.
Regards,
Dan Ferris and Sean Goldsmith
New York, New York
October 12, 2010