Make money regardless of what's happening in the world... The five qualities of a World Dominator... Intel could raise its dividend 45%... This 'boring' company is the top performer in the Dow... This hyped stock just got on the 'Black List'... How to join us in Nashville from your living room...
For months, we've told you all the reasons investors are worried today...
European economies are cratering, China is slowing down, Russia is invading Ukraine, the U.S. is bombing Syria... Global central banks are printing trillions of dollars and destroying their currencies, stocks are expensive, bond yields are egregiously low, and the world is drowning in debt... to name a few.
It's a long list. And any one of these situations could escalate, causing a market correction.
But despite all the turmoil, there has been a way to make large gains this year while sleeping easy at night. All you had to do was buy the safest stocks in the market – what Dan Ferris calls "World Dominators."
As Extreme Value subscribers know, Dan (literally) wrote the book on World Dominators.
If you aren't familiar, a World Dominator is generally the largest, most powerful company in its industry... companies like soft-drink icon Coca-Cola, software behemoth Microsoft, and semiconductor giant Intel. But there's more to a World Dominator than just a large market share.
World Dominators also typically share the following characteristics...
| 1. | Consistently thick profit margins. |
| 2. | Gushing free cash flow. |
| 3. | Financial fortress balance sheet. |
| 4. | Consistently high returns on capital. |
| 5. | Rewarding shareholders through dividends and buybacks. |
Intel is the classic World Dominator. Last year, it booked 62% of global computer-chip sales. The company makes 98% of the chips for servers. Its market cap is $170 billion... Its closest competitor – Advanced Micro Devices – is a $3 billion company.
Intel has profit margins of more than 19%... In the past three years, it earned between $9.6 billion and $13 billion.
As for free cash flow, Intel generated between $8 billion and $10 billion over the same period – a huge sum. Its balance sheet is fortress-like... The company has $92 billion in assets versus $32 billion in liabilities.
Plus, few companies have rewarded shareholders better. Since the company went public in 1992, Intel has raised its dividend 17 times and bought back more than 1 billion shares in the past decade.
When a company is so dominant and produces so much cash, it can withstand most any market turbulence. So when shares sold off last year as the market feared the company would decline along with slowing PC sales, we weren't worried. Here's what Dan told his subscribers in September 2013...
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Just take a look at Intel's share price since then...
As Dan noted, when a company is generating $8 billion in free cash flow in a "bad" year, it can withstand a lot of problems.
In fact, Intel is the best-performing stock in the Dow Jones Industrial Average this year – up around 33%. The S&P 500 has returned 7% over the same period.
In addition to solid capital gains, you're also earning more and more money each year as Intel raises its dividend and buys back more stock. As Dan says...
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To illustrate the power of increasing dividends, let's look at Intel's history...
When Intel first started paying its dividend on December 1, 1992, the company paid out just $0.0125 annually per share. Split-adjusted – Intel was trading at $2.24 on December 1, 1992 – the yield at the time was a tiny 0.01%. Remember... at the time, Intel was a fast-growing technology company. Its capital was spent growing the business.
But things are different today. Intel is a mature company. And it's able to return more capital to shareholders. Today, the same Intel shareholder now receives a $0.90 annual dividend... That's a 40% annual yield on your split-adjusted 1992 purchase price.
If you're earning 40% a year in dividends, you don't really care about market fluctuations.
And Intel's dividend could soon rise again...
Mark Lipacis, an analyst for investment bank Jefferies, expects Intel to raise its dividend anywhere from 8%-45% over the next two years.
Intel currently trades at $34.60 per share and yields 2.6%. The company hasn't raised its dividend since the summer of 2012. But Lipacis believes Intel will raise its dividend for two primary reasons.
The first is Intel's share-repurchase plan. The company plans to buy back $20 billion worth of shares by the end of 2015 – about 8.5% of shares outstanding at today's prices.
Lipacis estimates that the share count reduction alone should result in an 8% minimum increase in Intel's dividend. With fewer shares outstanding, Intel will have more cash flow per share that it can use to pay dividends.
Lipacis also expects Intel to gain additional market share in the PC and tablet market, which will translate to revenue growth and improved margins.
Tablet sales are expected to surpass PC sales by the beginning of 2016. Market research group International Data Corporation expects global tablet sales to reach 271 million units in 2014 and 386 million units by 2017.
Intel generates approximately $9.4 billion in free cash flow annually. Lipacis estimates that will go up to around $15 billion due to lower capital expenditures (as it completes three new manufacturing facilities currently underway, which will cost around $10 billion) and profit generated from the introduction of the 14 nanometer (nm) microprocessor unit.
Its 14nm products will feature improved performance, longer battery life, and will be used to manufacture a wide range of products, including servers and other personal-computing devices (like tablets).
Lipacis estimates that Intel can use 40% of its $15 billion in free cash flow on dividends... which means Intel's dividend could potentially rise 45% from here.
We've long told you that buying shares in companies that pay safe and increasing dividends is one of the safest ways to beat inflation... If your cash payout from Intel is growing by double-digit percentages every year, you'll undoubtedly outpace inflation.
Dan recommended Intel to his Extreme Value subscribers in April 2009. Last week, he told us...
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Guess what the Dow's second-best-performing stock this year is?
Another World Dominator: Microsoft. It's up 23%. The story is the same... Microsoft is the world's dominant software provider. It produces a huge amount of cash. It pays a healthy, increasing dividend... But most investors think the company is "boring" and dying along with the PC. We'll take the other side of that bet all day.
We're also going against the crowd's opinion on one of the market's growth darlings today... mobile camera-maker GoPro.
We first wrote about GoPro – and shared our skepticism – in the June 30 Digest. Since then, shares have soared. And they're up another 6% today to a new high after announcing a new model of camera.
But shares just crossed a dangerous point – something that places GoPro on Porter's "Black List." The Black List is a monthly tally in Stansberry's Investment Advisory that shows which companies with a $10 billion-plus market cap are trading for more than 10 times sales.
After today's rise, GoPro has a market cap of $11 billion. It's trading for more than 10 times sales – not to mention 120 times earnings before interest, taxes, depreciation, and amortization (EBITDA).
In the September issue of Stansberry's Investment Advisory, the Black List had a record 29 names. We don't short a stock just for being expensive (which GoPro surely is)... But the company's rapid ascent and the rising number of companies on the Black List are two more signs of the market's frothiness today.
New 52-week highs (as of 9/26/14): CF Industries (CF), WisdomTree Japan Hedged Equity Fund (DXJ), and Altria (MO).
In last Friday's Digest, Porter invited everyone to join us in Nashville on October 18 for our final Stansberry Conference of the year... But several people were upset because they had scheduling conflicts. Luckily, we have a solution, which you can read below. Be sure to send your questions and comments to feedback@stansberryresearch.com.
"Hello, I am a relatively new Flex Alliance subscriber and I have a little story to tell you and a request. I happen to be going on a golf vacation for a week in Florida starting the Monday after the Nashville conference. I pre-paid for that trip in April, around the same time that I joined the Flex Alliance actually. In August when we received our kids Hockey schedule (we're Canadian) my wife told me to cancel the trip because our kids will be on the ice a total of 12 times during the week I am away!! But I can't; it's a pre-paid group trip. She's NOT impressed.
"Also earlier this year I pulled all my money out of mutual funds, invested the bulk in cash flowing investment real estate up here in Toronto and then set up a trading account to act on the Flex Alliance's best recommendations with the remaining proceeds. I am in a learning curve and am currently slightly down on the year but I am long a variety of (Alliance recommended) resource stocks that have been hurt in the last couple weeks. I am VERY optimistic about my prospects and all of the wonderful information coming from my 5 subscriptions!
"Now I must tell you that I am a BIG believer in training and absorbing the lessons from conferences such as yours. But when I asked my wife if I could go a couple days early to go to this event she literally blew her stack! It was scary! And she's a really beautiful girl who I love dearly, so I let it go...
"Now there are a couple of requests I could make here, one being to ask if you could you please email my wife and encourage her to let me come? But the one that makes the most sense is to ask, will there be a way to access a recorded copy of the event? I am happy to pay for it. I saw somewhere that if I pay for the event then I would get an email on the Monday following with all the content, is that correct? So theoretically I could pay, not show up and still receive the content?
"Please help. And if you reply back asking for my wife's email address I know I signed up with the right bunch of people! Warning: she is small but she is mighty – and in this case mighty determined that I am not allowed to leave for the extra couple days, so I think one of the other ideas would be a better solution!" – Paid-up subscriber Joe Glube
"I am not afraid of hotels, meeting new people or shots of whiskey in Nashville until the early morning after your event. However, timing just does not work as we have to travel to lovely Boise to watch a family friend play football then Nashville the FOLLOWING week to watch our friend play for the Titans (maybe postpone the meeting until the next week). Is there a way to have Alliance members perhaps watch a live or delayed stream of the event? Hint- to push your competitive button- some other services offer that for those that cannot make it... Would be nice. Better yet- come to Phoenix and have an event- maybe during January – we have bowl games, Super Bowl, Waste Management Open, Barrett Jackson all back to back to back- Might be a good time... Hope I can benefit from the Nashville event even though we cannot make it this time around- it does sound great." – Paid-up subscriber David Bailie
Goldsmith comment: You're both in luck. We hire a world-class video-production team to "live stream" every Stansberry Conference event. We knew many folks wouldn't be able to attend these events in person... But we didn't want anyone to miss out on the valuable information being presented.
We've heard from a lot of readers who are skeptical of the quality of the video streams. We assure you, they're top-notch.
You can see for yourself below... We've included a link to watch Porter's presentation from our recent event in Los Angeles. (Just click on the image.)
If you would like to watch our Nashville event live from the comfort of your home, it's only $199. You'll hear from former U.S. Congressman Ron Paul, currency expert Jim Rickards, Agora founder Bill Bonner, Porter (and see the huge surprise he has planned), and many others.
Plus, when you sign up for Nashville, you'll also have access to our past events in Miami, Dallas, and Los Angeles – where you can see talks from oil legend T. Boone Pickens, bestselling author James Altucher, resource billionaire Rick Rule, controversial radio host Alex Jones, and more.
Regards,
Sean Goldsmith
September 29, 2014
How the Fed has made income investing dangerous...
For the past several years, Palm Beach Letter publisher Tom Dyson has made a name for himself by finding little-known ways to generate safe income in the stock market.
In today's Digest Premium, he evaluates the current market for income investors... and explains how the Federal Reserve has changed things...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
How the Fed has made income investing dangerous...
Editor's note: For the past several years, Palm Beach Letter publisher Tom Dyson has made a name for himself by finding little-known ways to generate safe income in the stock market. In today's Digest Premium, he evaluates the current market for income investors... and explains how the Federal Reserve has changed things...
Income investing has never been more dangerous than it is at this exact moment.
There's a phrase I (Tom Dyson) once heard: "Never in the history of humankind has more money been lost than by people who have reached for yield." That means people try to get more income from their investments by taking on too much risk. And what inevitably happens is the risk they're taking comes to pass, and not only do they not get that interest... they lose their entire investment and they get wiped out.
Let me give you an example. Imagine I told you that a certain type of investment bond had historically paid 8% annual interest... But today that same bond only pays 4%. If you buy that bond and accept its 4% return, you're reaching for yield. You're accepting less interest than you deserve because you're being impatient.
Here's another example. My mother recently told me she's considering buying a property in London, near where she lives. The property would cost $400,000 and generate $18,000 per year in rent. That's a 4.5% annual return.
"That's a good return," she said. "I can't get that anywhere else."
"That's a terrible return," I said. "Property should return 8%-10% a year – at least – to compensate you for all the work and hidden expenses that property entails."
She was reaching for yield.
At this exact moment, I believe we're in the middle of the largest mass reach for yield the world has ever experienced.
The Federal Reserve has moved interest rates to zero. This has forced money from bank deposits that pay no interest into higher-yielding investments that pay interest, like stocks, bonds, and real estate. Those trillions of dollars represent a giant reach for yield. And they have caused the payouts on high-yield investments to fall... like property in London, for example.
At the same time, there is a huge cohort of people retiring right now and over the next few years. We call this cohort the Baby Boomers. There are more than 75 million of them. This is the largest group of wealthy people in human history to stop working in such a short period of time. These people love income. They need income. They're the type of people who are predisposed to reach for yield.
As I mentioned earlier, the consequence is that money has flooded into bonds, stocks, real estate, and anything else that pays income. Income investments have become very popular. In my opinion, if it pays a dividend or a coupon, it's probably extremely overbought and dangerous because people have been reaching for yield en masse. I definitely would not advise anyone to buy income investments unless there's a special reason. They'll probably end up regretting it...
However, there is one income investment today that can compound your money at 5% tax-free and risk-free. We at Palm Beach Letter have nicknamed this strategy "income for life." I have a six-year-old who is going to be richer than Warren Buffett by the time he dies by using this strategy. It's basically the only safe place I know to generate income that does not qualify as "reaching for yield."
– Tom Dyson
Editor's note: To learn more about Tom's "income for life" strategy – an unusual investment approach that he believes you can use to generate 5%-plus a year completely tax-free – click here.
How the Fed has made income investing dangerous...
For the past several years, Palm Beach Letter publisher Tom Dyson has made a name for himself by finding little-known ways to generate safe income in the stock market.
In today's Digest Premium, he evaluates the current market for income investors... and explains how the Federal Reserve has changed things...
To continue reading, scroll down or click here.