In yesterday's Digest Premium, we discussed what you should do if you hold a lot of cash in a U.S. bank… Following the events in Cyprus, many accountholders here fear our indebted government could simply steal their money, too. The sad truth is that the government can take your money no matter what you do (more on this later)… Still, my advice was to not look for a safe bank, but a safe currency.
However, you can find both with EverBank. At EverBank, you can hold your savings in a wide range of different currencies. You can also buy whatever kind of sovereign bonds you'd like. It's much more flexible and global than any bank account we've seen elsewhere.
Full disclosure – EverBank does advertise on my weekly Stansberry Radio podcast. But let me be clear... EverBank isn't paying me for this endorsement. I (Porter) only recommend you open an account there because it offers a product I'm happy to endorse.
EverBank is the only retail bank I know of that does a great job of allowing you to diversify into other currencies… And it'll walk you through the process of buying a foreign sovereign bond as well.
If for some reason you're not happy with EverBank, that's fine… You can also call my friend Jeff Winn with the brokerage firm International Assets at 800-432-4402. He's been there for about 20 years and has served many of my friends and family members. He's very reliable and trustworthy. He likewise can help you diversify into foreign currencies. If you'd like to buy a foreign sovereign bond, he can do it for you with no problem.
– Porter Stansberry with Sean Goldsmith
The latest drama in the saga of troubled retailer J.C. Penney unfolded last night...
Ron Johnson – the man handpicked by billionaire hedge-fund manager Bill Ackman to turn around the chain – stepped down as CEO after only a year and a half.
Ackman initially invested in J.C. Penney in October 2010 and added to his holdings in September 2011... Today, he owns around 18% of the company. As part of his turnaround plan, Ackman recruited Johnson, former head of Apple retail.
Johnson's first move was to rebrand J.C. Penney as "JCP." He also abandoned the retailer's coupon program in favor of "fair and square" pricing. And he worked to make the department store more upscale by introducing a "store within a store" concept, where brands would have their own shop within a Penney store.
But it didn't work...
When the coupons left, so did the customers. Johnson eventually admitted his error and reintroduced discounts. And while the updated stores did enjoy higher sales per square foot, it wasn't enough to stop the downward spiral.
For 2012, the first full year of the turnaround plan, sales dropped $4.3 billion to $12.9 billion. The company lost $1 billion for the year. And it fired 21,000 employees.
Shares of J.C. Penney fell 44% last year. They're down 63% from their February 2012 highs. According to Bloomberg, Ackman's losses on the position now total more than $650 million.
We've been skeptical of Ackman's investment from the beginning. We doubted his and Johnson's capital and expertise could save a tired retailer. And we believed the focus on upgrading stores was an error. Online retail would have been much cheaper and more effective.
As we wrote back in February:
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We respect Ackman. He's made a fortune for himself and his investors over the years. But we knew his foray into retail would be a disaster...
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J.C. Penney is bleeding cash. Customers are leaving. The executive team is waffling on strategy. And the company has received so much negative press throughout its turnaround efforts, it would need to completely rebrand itself to survive. It looks like this retailer is in its death throes...
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The market initially praised Johnson's exit, sending Penney's shares up 13% in after-hours trading yesterday. Then, JCP announced it would replace Johnson with his predecessor, Myron Ullman III. Shares plunged as much as 12.4% today.
While we wish Ackman continued success with his investment, we still think J.C. Penney's issues are too severe for any executive to turn around.
But Ackman's day isn't totally ruined...
In January, I (Sean Goldsmith) attended a meeting in New York City where Ackman was going to disclose a major new short position. What followed was a three-hour takedown of nutraceutical company Herbalife.
For the full details, please reread the January 10 Digest. (Digest Premium subscribers can also revisit the December 20 and 21 issues, here and here.) In short, Ackman argued Herbalife was a Ponzi scheme and that shares were worth zero. After the presentation, Herbalife shares fell 40%.
Two other billionaire investors, Carl Icahn and Dan Loeb, took advantage of the post-Ackman selloff to build positions in the company. They argued Ackman's claims were overstated.
News today raised more red flags about Herbalife...
Accounting firm KPMG resigned this morning as Herbalife's auditor. Trading in Herbalife shares was temporarily halted (to stem massive losses). Shares have resumed trading and are down around 4%.
In a statement, KPMG said it was resigning from two clients (including Herbalife) after it discovered a partner at the firm was involved in insider trading. However, the firm said it has no reason to believe the company's financial statements were "materially misstated," according to Bloomberg.
While the announcement doesn't directly address Ackman's claims... it's still a fishy situation...
As Porter's research analyst, Bryan Beach, a former KPMG auditor, wrote in an e-mail this morning... "This is huge. This never happens... Ever."
While we enjoy the drama surrounding these hedge-fund battles, we'll leave the speculations to investors much braver than ourselves... We're happy making safe, consistent gains with the world's most capital-efficient businesses.
As regular readers have heard us explain... "capital efficiency" is a measure of how much cash a company generates and how much it needs to maintain (and grow) its business. When you can find a cash-gushing business that can grow steadily without major reinvestments... you have the makings of an excellent long-term investment.
McDonald's, one of our favorite stocks, is a quintessential capital-efficient business... And shares of the fast-food giant recently hit a 52-week high.
As Porter wrote in the December issue of Stansberry's Investment Advisory...
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I've long known that companies that are highly capital-efficient will earn investors extremely high returns if they reinvest their dividends. We found that over the last 30 years, the average total return from these four companies was around 6,000% – or 15% annualized.
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McDonald's shares aren't expensive. In fact, they're almost never expensive, which is another reason the company makes such a great pick for long-term compounding.
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If you go back 20 years... you'll find that McDonald's shares have almost always changed hands for around 10x earnings. There was a brief period during the big stock market bubble in the late 1990s where investors lost their minds. McDonald's traded all the way up to a 16-multiple then. But besides that brief period, McDonald's shares have always been available at a reasonable price.
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In addition, McDonald's also pays a 3% dividend (trouncing the 1.7% you'll earn with 10-year Treasurys).
McDonald's business is so good, Porter believes it could be a takeover target for legendary investor Warren Buffett. (Buffett has made a fortune investing in capital-efficient businesses, which he describes as having lots of "economic goodwill.") As Porter said in the February 22 Digest Premium...
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After Warren Buffett announced his deal to acquire Heinz (in partnership with Brazilian private-equity firm 3G Capital), the billionaire investor told CNBC he was looking for another "elephant" to buy. Buffett has cash... and he wants to put it to work.
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Following the deal, we did an analysis that compared McDonald's with Heinz. McDonald's, like Heinz, is a capital-efficient business with a strong brand... exactly the type of company Buffett wants to own...
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McDonald's is the only company I can think of that Buffett would want to buy today... It's within his price range. And he has experience owning businesses like McDonald's...
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If you go back and look at my December issue, we published a full analysis of the best capital-efficient companies that are trading at low prices... In the analysis, I discuss what Buffett and I look for in a company – companies that produce a high return on capital and don't require much in the way of capital expenditures. I like companies with a return on assets of more than 15% a year. And I want to buy a company at a price (enterprise value) of less than 10 times cash earnings.
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McDonald's is on that list... And it's in Buffett's "wheelhouse."
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Porter's readers are up 15% on McDonald's since December. And they're still collecting the healthy, 3% dividend.
New 52-week highs (as of 4/8/13): Berkshire Hathaway (BRK), Wisdom Tree Japan Hedged Equity Fund (DXJ), PowerShares Buyback Achievers Portfolio Fund (PKW), Targa Resources (TRGP), W.R. Berkley (WRB), SPDR Utilities Sector Fund (XLU), VF Corp. (VFC), Coca-Cola (KO), Calpine (CPN), Dominion Resources (D), Chubb (CB), Travelers (TRV), McDonald's (MCD), Wal-Mart (WMT), CVS Caremark (CVS), and Target (TGT).
In today's mailbag... we were "April fooled." Send your notes to feedback@stansberryresearch.com.
"Re: The S&A Digest, April 04, 2013...
"Early on April First, I e-mailed you about a party where a certified gold coin was 'cracked-out' during a drunken party. Actually, I made it all up except for having the gold coin. I've been a numismatist for almost 60 years, have/know about certified coins and haven't watched any of the playoffs -- was building cabinets in a new utility room on Saturday.
"Porter was very pleased with his April Fools stock tip about 3(?) years ago. I fell for it then and wanted to return the favor. I was hoping for a comment to show he was hooked but was not expecting to have it published. Maybe I should take the copy writing course Mark Ford recommends.
"I have had some dealings with David Hall Rare Coins, so please let Van Simmons know that I'm not really a dummy as I may see him at major coin shows. Fess-up now, folks." – Paid-up subscriber Ted L. Dent
Goldsmith comment: You got me... perhaps that speaks to some of the feedback e-mails we've received in the past.
Regards,
The best bank account to diversify out of the dollar…