One of the best recommendations of Porter's career... Rising chocolate prices... Huge numbers from Blackstone... Druckenmiller on the Fed: 'Baffling'... What the sanctions against Russia mean...
Porter said it would be one of the top recommendations of his career...
The company was a model of capital efficiency... And it was historically a great hedge against inflation.
Capital-efficient companies require little in ongoing capital investments. They can raise prices to fight inflation... And they pay the extra cash to shareholders – much like Dan Ferris' World Dominators we discussed in yesterday's Digest.
Most of the extremely valuable, highly capital-efficient businesses produce simple, branded consumer products that are known for consistent quality and consumer loyalty, like Coca-Cola soft drinks and McDonald's hamburgers.
In his December 2009 issue of Stansberry's Investment Advisory, Porter recommended chocolate company Hershey.
Like the companies we mention above, Hershey makes a high-quality, high-margin product that sells well regardless of the economy – chocolate bars. It doesn't involve cutting-edge technology or expensive capital equipment. Its timeless and consistent products are one of the reasons customers love Hershey.
Porter wrote:
|
But Porter also liked the company because it was able to raise prices to fight inflation... Hershey proved to be a better inflation hedge than gold. From the December 2009 issue:
|
In the June 30 Digest, we told you about ground beef prices hitting a record high, rising 76% from 2009 to $3.81 a pound.
But it's not just beef... Food inflation is far outpacing U.S. consumer price index (CPI) inflation.
In May, CPI inflation was 2.1% year-over-year.
But pork chop prices were up 12.7% in May from a year ago. Eggs were up more than 10%. Fresh fruit is up 7.3%; oranges alone have soared 17.1%, respectively, over the same time frame.
The U.S. Department of Agriculture predicts food prices will rise between 2.5% and 3.5% this year after a 1.4% increase in 2013.
In other words, food prices are soaring... So are Hershey's input costs.
"Over the last year key input costs have been volatile and remain at levels that are above historical averages. Commodity spot prices for ingredients such as cocoa, dairy, and nuts have increased meaningfully since the beginning of the year," Hershey's North American President Michele Buck said in a statement. "Given these trends, we expect significant commodity cost increases in 2015."
But remember, Hershey is one of the few companies around that can successfully raise prices to combat inflation...
Hershey announced Tuesday that it would increase prices across the majority of its products by approximately 8%. It's the first price increase since 2011, when the company boosted prices by 9.7%.
And the last time Hershey boosted prices, according to Morningstar analyst Erin Lash, competitors followed suit.
Along with the price increases, Hershey announced it expects second-quarter net sales to jump 4.5%. And it expects earnings between $0.75-$0.77 per share – in line with analyst expectations of $0.76 a share.
The position is up more than 150% since Porter first recommended Hershey to his Investment Advisory subscribers.
We've noted many times in the Digest how the Federal Reserve's easy-money policies are a boon to private-equity shops...
These companies can borrow huge amounts of money at record-low interest rates to buy assets. As asset prices inflate, "private-equity shops" mark up the value of the assets on their books. And they're able to gather more assets to manage as the Fed prints more money.
And Blackstone Group's latest earnings only confirm that...
Second-quarter profit at the world's largest private-equity firm jumped 89% from $211 million a year ago to $517 million today. Blackstone reaped huge gains selling assets from its private-equity portfolio into a rising market (its portfolio of companies rose in value by 8.4% in the quarter).
Blackstone earned $4.2 billion from 10 deals in the quarter, including block sales of stock in companies it had earlier taken public, including Hilton Holdings (HLT) and SeaWorld Entertainment (SEAS).
And its backlog of unrealized gains rose to a record of $4.2 billion, up from $2.5 billion a year ago... indicating more profits ahead.
Blackstone reported assets under management of $279 billion, up from $230 billion a year ago. And it has $80 billion in real estate – the firm's largest segment.
Blackstone's distributable earnings, the portion of profits it pays to shareholders, were $771 million in the second quarter, more than double the $338 million from a year ago. Thanks to its huge earnings, Blackstone announced a $0.55 dividend, up from $0.35 in the previous quarter.
Shares rose more than 1% on the news. Steve Sjuggerud recommended Blackstone's stock to True Wealth subscribers in November 2012, and subscribers are up more than 170% since then.
But we know the Federal Reserve has engineered this boost in asset prices... If you inject $4 trillion into the economy, prices go up.
And we've been warning readers that this Fed-induced rally is much closer to the end than the beginning.
Hedge-fund manager Stanley Druckenmiller of Duquesne Capital just expressed his own worries about the Federal Reserve in a speech at CNBC's Delivering Alpha Conference yesterday in New York City.
The billionaire fund manager called the Fed's policy "baffling" and said it "makes no sense from a risk/reward perspective."
Druckenmiller says the Fed has goosed markets to this point (the S&P has nearly tripled from its lows)... So why continue with the grand monetary experiment given the massive, unknown risks?
"Every ounce of intuition in my body is that the potential costs have crossed the potential benefits in Fed policies," Druckenmiller told the audience.
On the topic of conferences, we've got a few discounted tickets left to our upcoming event in Los Angeles on August 23. (Druckenmiller won't be attending...)
You can hear Porter and Doug Casey, master speculator and founder of the publishing firm Casey Research, share their thoughts on the Fed's monetary experiment (we promise their presentations will be much more entertaining).
Steve Sjuggerud is also presenting... As is the man Steve calls "the Warren Buffett of India," hedge-fund manager Rahul Saraogi.
And we have two surprise guests on tap who you won't want to miss.
To learn more about our lineup of speakers, and to make sure you don't miss out on these last few discounted tickets, click here...
Also, Digest Premium subscribers shouldn't miss today's update from S&A Global Contrarian editor Kim Iskyan.
Although Kim is on the ground in Argentina today, he sent us note about the most recent U.S. sanctions against Russia... He explains what the sanctions mean for Russian and American businesses, and which companies are likely to get hurt the worst.
If you're not a Digest Premium subscriber, you can sign up here. (It's only $10 a month...)
New 52-week highs (as of 7/16/14): Alcoa (AA), AllianceBernstein (AB), Anadarko Petroleum (APC), Activision Blizzard (ATVI), Brookfield Asset Management (BAM), Bank of Montreal (BMO), Discover Financial Services (DFS), Dorchester Minerals (DMLP), ProShares Ultra MSCI Emerging Markets Fund (EET), Greenlight Capital Re (GLRE), Intel (INTC), 3M (MMM), Microsoft (MSFT), Panhandle Oil and Gas (PHX), PowerShares QQQ Fund (QQQ), ProShares Ultra Technology Fund (ROM), Superior Energy Services (SPN), and Teekay LNG Partners (TGP).
"While Dan likes Sprott Resource Corp., he said another tiny stock is 'by far one of the best opportunities in the natural resource sector I've seen in my entire career.'
"For Gods' sake, tell us the name of the stock; don't send us on another wild goose chase to buy more of your publications. I got your S&A Digest to get information!" – Paid-up subscriber John Suckling
Goldsmith comment: Recall yesterday's Digest described the power of investing in the kinds of stocks Dan labels "World Dominators"... the opportunity he sees in coal... and what makes royalty companies some of the best businesses to invest in. Plus, it revealed three stocks in Dan's portfolio...
We think that's an awful lot of value for a FREE publication... And how are we able to continue writing the Digest for free?
In return for that valuable content... we regularly ask you to consider subscribing to one of our other paid products. We think that's a pretty good bargain.
Regards,
Sean Goldsmith
July 17, 2014
What the latest Russian sanctions mean for the market...
The U.S. just announced new sanctions on Russia regarding the conflict in Ukraine.
In today's Digest Premium, S&A Global Contrarian editor Kim Iskyan explains how these sanctions may affect stocks...
To subscribe to Digest Premium and receive a free copy of Jim Rogers' latest book, click here.
What the latest Russian sanctions mean for the market...
Editor's note: The U.S. just announced new sanctions on Russia regarding the conflict in Ukraine. In today's Digest Premium, S&A Global Contrarian editor Kim Iskyan explains how these sanctions may affect stocks...
Yesterday, the U.S. imposed a fresh wave of sanctions on Russia over the ongoing conflict in Ukraine. The additional sanctions weren't a surprise, as we explained in the June 16 and July 3 Digests... But that doesn't take away from the fact that it's bad news for Russia and people who hold Russian investments – and potentially, for the global market.
The latest sanctions target a range of banking, energy, and defense firms in Russia... It's a significant expansion of previous sanctions (which targeted individuals). But it falls short of taking aim at entire sectors. The most important companies that come under fire included Gazprombank – the country's third-largest bank, which was expected to be subject to sanctions – and oil giant Rosneft. Novatek, Russia's second-largest gas producer, was targeted, as were eight state-owned defense companies.
These companies will be prohibited from tapping U.S. debt markets for new financing that extends beyond 90 days and for new equity financing. Rosneft, for example, has $26 billion in financing from foreign banks... U.S. investors won't be able to be involved in helping Russia's largest oil company in rolling that debt over.
Even though Russia is on Europe's doorstep, Europe has been reluctant to follow the American lead on sanctions, in part because of its greater business interests in Russia. Also, Europe relies on Russia for natural gas... so it's wary of angering Russia. But the European Union (EU) recently tightened sanctions (although not as much as the U.S.).
These latest sanctions from the U.S. are an inconvenience to Russia, but not much more than that. Russia has recently reduced its vulnerability to western sanctions. It has cozied up to China, seeking investment and funding. And Russian President Vladimir Putin just signed a deal with emerging markets like Brazil, Russia, India, and China – the so-called BRICs – to create a new development bank. He also signed a deal to supply Argentina with nuclear power plants.
But some major businesses might suffer... Oil giant ExxonMobil's plans to launch operations in the Arctic with Rosneft may come under pressure. And investment bank Morgan Stanley's plans to sell its oil business to Rosneft might be derailed.
Some investors in the west might sell first and ask questions later. With heightened U.S. government scrutiny, some big institutional investors may decide that it's easier to cut their exposure to Russian companies subject to sanctions... even if sanctions address only new issuances. Also, some investors may try to get in front of a possible next round of sanctions and sell other Russian assets they hold.
The main objective of sanctions is to make Putin think twice before increasing Russia's efforts to destabilize Ukraine. But again... Ukraine is a red-line issue to Russia... Putin isn't going to back down easily.
Lastly, some believe the U.S. government "wants to break the complacency of international markets regarding the Ukraine crisis. In the United States' view, markets have been doing business as usual while Russia continues to destabilize Ukraine," a former colleague told me. It's a warning worth bearing in mind.
– Kim Iskyan
What the latest Russian sanctions mean for the market...
The U.S. just announced new sanctions on Russia regarding the conflict in Ukraine.
In today's Digest Premium, S&A Global Contrarian editor Kim Iskyan explains how these sanctions may affect stocks...
To continue reading, scroll down or click here.