High quality rules... Do we buy here?... CVS hits a new high... Euro hits a two-year low... DailyWealth Trader goes long gold...
High-quality, dividend-paying stocks are among the best performers in the market today. In the past week, Wal-Mart, Altria Group, CVS Caremark, Abbott Laboratories, Johnson & Johnson, Berkshire Hathaway, Coca-Cola, and many other stocks in our recommended portfolios hit 52-week highs.
Take a look at the five-year chart below. It shows the performance of the S&P 500 versus some of the world's safest stocks, represented by the SPDR Consumer Staples Select Sector exchange-traded fund – which holds a basket of 41 stocks representing an array of products people buy regardless of how bad the economy gets. (Its holdings represent a brand-name Hall of Fame... including Coke, Wal-Mart, Procter & Gamble, Kraft Foods, Kellogg, Smuckers, and Clorox.)
Dan Ferris calls these stocks "World Dominators" and "World Dominating Dividend Growers." Dr. David "Doc" Eifrig doesn't have a catchy name for them, but he's loaded the Retirement Millionaire model portfolio with them.
These are the world's best companies. And in times of panic, like today, investors are attracted to the safety and income these stocks offer. But with many of them trading at new highs, are they still a good buy?
Steve Sjuggerud thinks so... He recently analyzed decades of price data for these companies to see how they performed after big price runs. He described his findings for subscribers of his True Wealth Systems advisory...
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Shares of Coca-Cola are fast-approaching 14-year highs, just like biotech in late 2011. Importantly, Coke shares soared over 1,000% – twice – AFTER hitting new, long-term highs. |
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The chart here shows what I mean... |
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Coke peaked in 1946. It took 14 years until it hit a new high in 1960. Then, shares of Coke soared over 1,000%. |
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The same thing happened again in 1985... After 13 years without a new high, Coke shares hit a new high in 1985, then soared over 1,000%. |
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Neither of these 1,000% gains happened overnight, of course. But as the chart shows, the rise was fairly steady. |
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Now – 14 years later – it's knocking on the door of a new high again. Should you sell Coke (like most investors would) if it hits an all-time high? Or should you buy? |
I can't tell you exactly how Steve is playing this trend... True Wealth Systems subscribers received his top recommendation last week in the July issue. To subscribe to True Wealth Systems – and access Steve's latest idea – you can click here. (You won't be directed to a long video.)
In particular, I'd like to highlight CVS, which hit a 52-week high last Friday. Doc Eifrig originally recommended CVS, the U.S.'s second-largest drugstore chain, in the June 2011 issue of Retirement Millionaire. He recommended the stock to take advantage of the aging U.S. population...
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Companies that provide quality health care goods and services at fair prices to this aging U.S. population should make a fortune, no matter what happens in Washington. |
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We're seeing growth in the oldest segments of the population, too. This chart below shows how the number of 75 year olds (and older) will increase in the next 40 years. |
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More elderly people means more money spent on health care. Unless everyone starts following my recommendations for walking, yoga, meditation, and diet, these demographic patterns mean an explosion in the use of pharmaceutical drugs for the elderly. |
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Older people use three to four times the amount of prescription drugs as folks under 50. And more than 30 million people will gain Medicare coverage by 2014. This means an increasing number of written prescriptions. |
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Right now, only 10% of Medicare dollars are spent on pharmaceuticals. If Washington starts looking for cost-effective ways to manage health, prescription drugs will be a quick and easy way to test its hypothesis. In many cases, the use of drugs can ward off diseases for many years. For example, doctors already know blood-pressure pills and diabetes medications prolong lives cheaply. |
In an e-mail to me today, Doc said the stock is doing well because it's "starting to pop up on everyone's list as the best drugstore." Plus, the company is gaining market share as competitor Walgreens fights with Express Scripts. Express Scripts is the largest pharmacy-benefit manager (PBM)... These companies handle drug benefits for health care plans and corporate customers. And they use their size to get rebates from drug manufacturers. Walgreens ended its relationship with Express Scripts last year (giving up 80 million prescriptions worth $4 billion). Doc says CVS is the best drugstore to own.
Last Friday, the euro hit a two-year low of $1.225. The currency lost more than 3% against the dollar last week. It sank after the European Central Bank (ECB) cut interest rates by 25 basis points (a basis point is 1/100th of a percent) to a record-low 75 basis points on Thursday. The ECB also cut the deposit rate – the interest rate the ECB pays banks to park cash in its overnight deposit facility – to zero.
Along with the rate cuts, ECB President Mario Draghi said some "downside risks to the euro-area economic outlook have materialized... Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on both confidence and sentiment."
Deutsche Bank, Europe's largest bank and the biggest foreign-exchange trader, understands the inner workings of the euro. And it's still bearish. The bank says the euro will drop to $1.20 in the coming months. The latest European easing shows the ECB is hell-bent on devaluing the currency... And it doesn't pay to bet against a central bank.
And John Taylor, founder of FX Concepts, the world's largest currency hedge fund, is even more bearish... "We would argue that even if the eurozone were to solve its banking and sovereign funding problems, the depth of its developing recession should drive the value of the currency down about 20-30 per cent from current levels," Taylor wrote in a recent note to clients. "A corollary of that argument is that the European Central Bank should be assisting this fall."
So how do you play the trend? You could short the euro, of course. But Amber Lee Mason and Brian Hunt, co-editors of our newest product, DailyWealth Trader, see opportunity in another currency... gold. In today's issue, they wrote...
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[The euro] bear market is a big reason to stay bullish on gold over the long term. |
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As we often note, the U.S. dollar is the target of many bearish predictions, and it sure has its problems. But it's the euro that is in the worst shape right now. It's in a slow-motion train wreck that will take years to play out. It will continue to prove that the paper currencies of "spend and borrow and pretend we don't have problems" regions are vulnerable. This will make more and more people seek "real money" crisis insurance in the form of gold. |
Between European, U.S., and Chinese central banks, the world will soon be awash in liquidity. And the latest numbers from China only support this fact... Consumer prices in China dropped 0.6% in June from May, the largest month-to-month drop in two years. Consumer prices were still up 2.2% from a year earlier.
And producer prices were down 0.7% in June compared with May and down 2.1% from June 2011.
When the world's fastest-growing major economy starts showing deflationary signs, watch out... China has $3 trillion in foreign exchange reserves... and it's not afraid to use them.
If you'd like access to our daily trading recommendations... including the long-gold idea above... you should consider a subscription to DailyWealth Trader. Every day the market is open, Brian and Amber inform readers of the latest trends in the market and recommend ways to profit from them. So far, they've made big gains shorting oil stocks, Dell, and trading gold. And they update you on the opinions of our in-house options guru, Jeff Clark, as well as some of the best money managers in the world.
We charge a low monthly fee for the service. You won't be able to find so much quality, actionable trading recommendations at such a low price anywhere else. To get started with DailyWealth Trader, click here...
New 52-week highs (as of 7/6/12): Exact Sciences (EXAS), Alico (ALCO), Wal-Mart (WMT), and CVS Caremark (CVS).
In today's mailbag, trading and fishing. Where else will you find such diverse feedback? Send yours here... feedback@stansberryresearch.com.
"I congratulate and praise you for again discussing covered calls in your 7/6 S&A Digest. You are right – few people trust options. Yet I have been using them successfully for about 9 months. In April, I wrote you to say that, having used S&A services for about a year, I was making my investment strategy primarily one of buying WDDGs and selling covered calls on them. The only way that I lost money was when the stock price went up too fast, which WDDGs have been doing recently, and then I simply bought back the calls. Incidentally, your and Dr. Eifrig's comments and advice beyond financial matters are interesting diversions." – Paid-up subscriber Bob Bruton
"I was sent an e-mail about your trip to Rum Cay and San Sal by one of your subscribers and a very close friend of mine Wilson (Bill) K. Wallace. Bill tells me you're a good Gator, as am I (Ag Economics, '73), and most of my family.
"My son (UF, Business, 2000) and I, plus a few of our friends and business associates have had several trips to Rum and San Salvador in our 65' Viking, 'Xport.'
"Fishing is phenomenal out of Rum, and due to the quick drop off, you are fishing within a mile of the marina. Highlight of one of the trips was my son catching a 500# (+/-) Blue, and when he got it to the boat there were 2 more of similar size right behind it. Obviously the one my son caught was a female, and the 2 behind were males. We tried unsuccessfully to hook up with one of the males, and after a couple of tries I told our mate to release the fish, as we certainly didn't want to harm her. But what a sight I had from the flybridge, looking at 3 of these magnificent animals together!! I was so taken I didn't even get a photo!!
"At Rum though, about dusk watch out for the mosquitoes!! I'm a Florida native, born in Vero Beach in '51, and have never seen them as bad as at dusk on Rum!!
"At San Salvador we stay at Riding Rock Marina, a typical, quaint Bahamian out island marina. If you are there, ask for Miss Peaches at the bar. Her Goon bay smashes are as large as her bodacious chest!! And her huge bowls of popcorn second to none!! They also make some of the best conch fritters around!!
"Enjoy the trip. I know you will!!" – Paid-up subscriber Ken Kennedy
Regards,
Sean Goldsmith
Baltimore, Maryland
July 9, 2012