In the March 2011 issue of True Wealth, Steve Sjuggerud implored subscribers to invest in U.S. housing... He pointed to the low home prices in Las Vegas as an example of the great deals available...
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"Price of existing homes at 20-year low in Las Vegas." That was a headline in the Las Vegas Sun this week... |
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Twenty-year lows in home prices might sound bad, but the reality out in Vegas is even worse. House prices in Vegas are more likely at 50-year lows, when you adjust for inflation. Take a look at the chart below. The Nasdaq-style boom-then-bust in Vegas is obvious. |
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Las Vegas homes are likely the cheapest in history if you adjust for square footage. (Homes have doubled in size in the last 50 years.) The Las Vegas Sun reported the median price paid for a house in January was $109,000, out of 3,800 homes sold last month. |
Using back-of-the-envelope math, Steve took the median U.S. home size of more than 2,000 square feet and multiplied by $100 per square foot (what it costs to build a decent home). Adding in the cost of the land beneath the house, Steve estimated the median home in the U.S. cost $225,000 in 2011... So you could buy a house in Las Vegas for less than half its replacement value.
Low prices – combined with record-low mortgage rates – led to "the best time in American history to buy a house," according to Steve. On a side note... 30-year mortgage rates were at 5% when he wrote this piece. Today, they're around 3.4%.
In short, Steve believed the housing market had bottomed. And he recommended the iShares Dow Jones U.S. Home Construction Fund (ITB), a collection of homebuilders and housing-related stocks, like Home Depot, to play the trend. True Wealth readers are up 57% so far on the recommendation.
Steve also recommended mortgage REIT Two Harbors to profit from the rebound in housing. Readers are up 29%... and they continue to collect double-digit dividends from the stock.
But the bullish housing news keeps coming... And there are still opportunities to profit from the trend...
U.S. home prices rose for the sixth straight month in September, according to the S&P/Case-Shiller Home-Price Index, released on Tuesday. The non-seasonally adjusted 0.3% increase in September signaled the housing market is "in the midst of a recovery," according to the index. That's on top of a 0.8% increase in August. And home prices were up 3% from September 2011, the largest annual percentage growth since July 2010.
Las Vegas and San Diego were the big one-month gainers, with home prices up 1.4% from the previous month. Phoenix has the biggest annual gain, with home prices up 20.4% from September 2011.
Despite the rebound in prices, Steve is still incredibly bullish on housing... And he recommended one of the largest U.S. buyers of single-family homes in his latest issue of True Wealth.
This company is comprised of some of the brightest investors in the world... And it's spent more than $1 billion on housing just this year. I can't get into much more detail without divulging the name of the stock, but the company is dirt-cheap from a valuation standpoint. From the latest True Wealth...
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We're at the end of 2012. It's time to start looking ahead at the earnings estimates... [Based on forward earnings estimates] the stock is trading at a forward price-to-earnings ratio of LESS THAN FIVE. That is ridiculous! |
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With earnings like that, analysts estimate the 2014 dividend will be around $1.38 a share. A $1.38 payout (based on today's stock price of $13.50 a share) would be a 10%-plus dividend! |
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If the stock earns $3 per share in 2014 and trades for 12 times earnings (as I believe it could), the share price would be around $36. Also, if the company pays out a dividend of just $1.38, the dividend yield would be 3.8%. |
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I think the stock could go higher than $36 a share... |
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You see, in 2014, we will still be in our zero-percent world, thanks to the Federal Reserve. The stock price could jump to $46 – which would still be a 3% dividend yield (based on a $1.38-per-share annual dividend). |
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A move to $46 a share would result in a 240%-plus capital gain from today's price. And we'll still be in position to collect a 10% – and potentially growing – dividend based on our purchase price. |
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These numbers seem crazy. But this company is crazy-cheap today. Triple-digit gains are more-than-possible here. |
If you're looking for exposure to U.S. housing, but you don't have the capital or time necessary to actually purchase and manage a property, Steve's latest recommendation is your best bet. The stock is "crazy cheap." It pays a healthy dividend, which Steve believes it could increase. And he believes shares could soar from today's levels.
To sign up for True Wealth and gain access to Steve's latest recommendation, click here...
Some stocks in your portfolio may be moving dividends forward, or even paying special, one-time dividends before year-end to avoid tax increases. Unless the government does something to avoid the "fiscal cliff," the current 15% tax rate on dividends (put in place by the Bush tax cuts in 2003) could increase to a top rate of more than 40%.
Most recently, Costco announced it would spend $3 billion for a $7-per-share special dividend. The stock jumped more than 5% today on the news.
Since the beginning of the fourth quarter, a record 103 companies announced they will pay special dividends before year-end, according to research firm Markit. The researchers estimate 123 companies will announce special dividends this quarter – the average is 31 companies.
The previous record for fourth-quarter special dividends was 74 in 2010 – the last time the Bush tax cuts were at risk of expiring.
Are these companies rushing to pay huge dividends to reward you, their loyal shareholders? Well, partially... At year-end 2010, when companies were paying special dividends, 53% of the companies had insider ownership exceeding 25% of shares. In other words, management is paying itself. You're a lucky bystander.
We'll leave you today with a funny bit from Stephen Colbert's current events parody show The Colbert Report last night on the Comedy Central cable TV network. Colbert, like us, believes the ballyhoo surrounding the fiscal cliff is mostly theatrics. And he took the opportunity to shine a light on the government's absurd methods for solving problems...
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It all started back in 2011 during the showdown over raising our debt ceiling... |
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Republicans wanted spending cuts... Obama wanted to raise taxes. |
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Which led to a budget crisis that Congress solved by not solving it. Instead, they handed it over to something called the "super congress," which couldn't fail because it was super. Unfortunately it was also Congress... So it failed. |
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As a result, we are facing another thing called "sequestration"... Automatic spending cuts that both sides agree would trigger a new recession. |
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It's like Congress put a gun to the economy's head and swore it would pull the trigger if Congress doesn't put its own gun down. |
You can watch the full clip here.
New 52-week highs (as of 11/27/12): Prestige Brands Holdings (PBH).
Still more positive feedback in the mailbag... It makes us nervous. Send your notes to feedback@stansberryresearch.com.
"Congratulations on building S&A Research into a great company. Obviously, you have affected the lives of many people, including me.
"I started reading many investment letters, but it did not carry over to investment success. Then I subscribed to your letter and to Sjuggerud's True Wealth. After one year, in 2004, I joined the Alliance Group. The best investment decision I have ever made. Since 2004, my portfolio has increased 144% In spite of the bad year in 2009, this is 10.4% annual increase over these 9 years. But even more important, S&A Research has provided me the opportunity to a financial education, PRICELESS!" – Paid-up subscriber R. Troyer
"Bravo to Steve and the research team at True Wealth. Despite my consistent appreciation for the product, this month's letter may be the finest piece of work yet out of True Wealth. Thank you for the consistent quality and the map & compass." – Paid-up subscriber Jason Dobson
Goldsmith comment: We agree, J.D. The latest issue of True Wealth is a "must read" in our opinion. And the stock Steve recommends is very likely to be one of the top performing stocks in the world over the next 12-24 months. You can access the issue, and take a risk-free trial subscription to True Wealth, by clicking here.
"I am a well-pleased subscriber who reads your information every day. It has helped me understand investing better than anything I've ever done. As a grandfather with four tiny grandchildren, I would like to make investments for them in a fund with World Dominating Dividend Growers and use their DRIPS to allow the funds to grow – while my grandchildren grow up. Does such a fund exist – or will I have to select individual stocks and invest in them one at a time? Keep the good work coming!" – Paid-up subscriber Dr. RW Gaines
Goldsmith comment: There is no exchange-traded fund for Dan's World Dominating Dividend Grower stocks (WDDGs). The only way to get access to Dan's exclusive list of WDDGs is through The 12% Letter.
The SPDR S&P Dividend Fund (SDY) tracks the S&P 500 Dividend Aristocrats Index. That includes stocks that have 25-plus years of consecutive dividend increases. SDY contains several WDDG stocks. But please keep in mind… we are unable to offer individual investment advice, and we have not researched this fund enough to know whether it would make a good investment.
Regards,
Sean Goldsmith
New York, New York
November 28, 2012
Las Vegas and the housing bust... Another gain for U.S. home prices... A 'crazy cheap' stock... Huge cash payouts... Colbert on Congress...