Like many other corporations these days, McDonald's is taking advantage of low interest rates. It just sold $450 million of 10-year debt paying only 3.5% interest, and $300 million of 30-year debt paying only 4.875%.
Bank of America says the 3.5% rate on the 10-year debt is the lowest any corporation has paid in the last 15 years.
With money this cheap and corporate America sitting on record amounts of cash, can a mergers and acquisitions boom be far away?
For the second quarter of 2010, Extreme Value World Dominator pick ExxonMobil reported a 91% increase in earnings over last year's second quarter. Everyone complains ExxonMobil bought back stock and piled up cash for years and years and didn't build reserves. I recently showed my Extreme Value subscribers why this viewpoint is incorrect.
You don't have to be a genius to know that ExxonMobil using its stock to buy XTO Energy's 45 trillion cubic feet of reserves for less than $1 per thousand cubic feet was a great idea. Poof! Everyone who said ExxonMobil wasn't growing reserves, or wasn't growing them fast enough, is proved instantly wrong, due to a single transaction... a transaction that made ExxonMobil the "mac daddy," low-cost, largest producer of natural gas in the United States.
What investors have failed to grasp is cash in ExxonMobil's hands is like cash in Warren Buffett's hands. Exxon is a brilliant capital allocator and a brilliant manager of its own capital structure. It knows what to do with the cash it generates. What's it doing now that the XTO deal is complete? Paying back XTO debt, of course. It just announced the repayment of another $2 billion in XTO bonds. ExxonMobil knows when to spend, when to refrain from spending, and how to keep itself in excellent financial condition. It refrained from spending during the boom years, buying back shares and building up cash. It bought XTO Energy with these shares after the crash.
I understand if you're bored by big-cap stocks like ExxonMobil. But I promise you that's a foolish viewpoint, since you're unlikely to make much money anywhere else for the next five to seven years, as I showed you in Tuesday's Digest.
Our World Dominator buy list, which includes ExxonMobil, is solely for subscribers to Extreme Value. Four World Dominators are selling below their maximum buy prices today. To find out what they are and get weekly updates telling you which ones are in buying range, click here.
One of the reasons I am reinforcing the big, safe, undervalued World Dominator stocks is because investors have shifted 180 degrees from their attitude in March 2009. Back then, they hated risk. They sold stocks, gold, bonds... everything except cash and Treasuries.
Now, they're in love with risk again. The VIX is down around 25 again, signaling investors' complacence, after peaking around 80 during the crash of 2008/2009, which signaled total revulsion to risk. Small-cap stocks, the lower-quality stocks in the market, are popular with investors again, with the Russell 2000 index up almost 90% since March 2009. Big-cap stocks are cheap, with World Dominators selling in some cases for less than nine times earnings.
With volatility experiencing wild swings like this, some people say it's an ideal trader's market, so you might want some good trading ideas, preferably the kind that produce 100%-plus profits...
Yes, it's another triple-digit trade for Short Report readers... Jeff sent out an update today telling subscribers to close a second part of their short on Dr. Pepper Snapple for a 100% gain. The company announced better-than-expected earnings today, but guidance was weak and the stock traded lower. Jeff's recommendation surged, and his readers have made a huge profit in only two days.
I don't know what else we can say to urge you to give Jeff's option trading service a shot... If two 100% trades in one week isn't enough for you, nothing is. Jeff made his fortune trading in choppy markets like these. The high volatility allows him tons of opportunities for great trades. We'd love to hear about the gains you're making reading Short Report. And if you'd like to learn more about the service, and how you can make quick, triple-digit gains on scalp trades, click here...
Why is Visa an inflation hedge? Visa operates the world's largest retail electronic payments network and manages the world's most recognized global financial services brand. Visa has more branded credit and debit cards in circulation than anyone else. And... this is the key: The financial institutions that license their brand do so on the basis of transaction volume. The more money people spend on their Visa-branded debit and credit cards, the more money Visa earns. (This is important: Visa doesn't hold any of the debt put on those cards. It merely licenses the brand and receives a fee for processing the transactions.) Ergo, the more money that exists, the more money Visa will make. – Porter Stansberry, June 2009, Stansberry's Investment Advisory
Visa announced earnings yesterday, and the payments volume rose 14% from a year ago to $803 billion. The total number of transactions processed in the third quarter also rose 14% from a year ago to 11.7 billion. In other words, people are spending more money on their Visa cards because there's more money sloshing around. That's inflation.
Visa's earnings did fall 1.87% for the quarter, but it was due to the sale of Visa's Brazilian subsidiary last year. Operating income actually rose 38% to $1.14 billion. Expect to see Visa's numbers continue to grow through 2011. The company said its revenue projections for 2010 would be at the high end of its previously stated 11%-15% range. And earnings per share should grow 20% this year. Visa said 2011 earnings per share should also grow 20%.
While things are looking up for the world's largest payment processor, the future is bleak for the world's largest steel producer. ArcelorMittal forecast its third-quarter profit would fall as much as 30% from the previous quarter due to rising iron ore costs and falling demand from China. Jim Chanos, the short-selling founder of Kynikos Associates, says there is currently 70 billion square feet of real estate under construction in China... And 30 billion of that is office space. To put it in perspective, Chanos notes that's enough for every man, woman, and child in China to have a 5x5-foot cubicle. Sam Zell, the famous commercial real estate billionaire, says he doesn't see any commercial construction in the U.S. for a decade. So raw material costs are rising and demand is nonexistent. Things aren't looking good for steel producers.
New highs: ATAC Resource (ATC.V), Western Digital (WDC).
Another happy Alliance member in today's mailbag. Any other good Alliance stories out there? Send them here: feedback@stansberryresearch.com.
"Doc's recent report 'The Black Book of Retirement Trading Secrets' alone was worth my Alliance membership. Too bad I can't tell you that it will pay for my membership as that has already been done several times over. Porter's 'Seven Secrets of the World's Best Investors' helped me stop my big mistakes. I don't know the right words on how to say it, but what I've learned about how to invest from being an Alliance member and developing my own plan for investing using your research as my starting point has made me the most money. I don't think you guys don't give yourself enough credit for this part. I think readers think only of what stock to buy or sell. Oh, several years ago I also took the crazy plunge of becoming an Alliance member with ½ of the investment capital I had available, because it was a lifetime membership. Since I'm in my late 30's I know I'm on the winning side of that trade! Keep up the great work!" – Paid-up subscriber Sean Boyd
Goldsmith comment: We truly believe our lifetime program, the Alliance, is the best value in financial publishing... And feedback like this proves it. For one low price, you receive everything we publish – and will publish in the future – for the rest of your life (this does not include our most exclusive service, Phase 1). And as Sean proves, you can quickly recoup the cost with our research... often with only a single trade. We normally only open the Alliance to new suscribers twice a year, but if you'd like more details on the program, you can call our head of sales, Michael Cottet, at (888) 863-9356 to discuss.
Also, if you'd like to learn more about Doc's "Black Book of Retirement Trading Secrets," click here.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
July 29, 2010