Right now, I (Porter) see two huge "back up the truck" opportunities to invest in the stock market...
But there's another huge trend taking place in the technology space... And there's a lot of opportunity related to a new round of capital investment and technology infrastructure.
In Monday's Digest Premium, Porter shared his views on Apple... and what share price might tempt him to buy shares of the computer and consumer electronics giant. As part of the piece, he noted one of the factors that makes it difficult to value Apple...
For one, we have no idea what the company will do with its $50 billion in cash. The potential options will make big differences in Apple's value.
It could choose to reward shareholders via stock buybacks or dividends. (It just initiated a dividend in August.) Those would be great signs for investors...
Or it could squander all that cash on senseless acquisitions. (See the $8.8 billion bath PC-maker Hewlett-Packard took on its acquisition of software company Autonomy, for example.)
It turns out that we're not the only ones wondering what Apple thinks it's doing with all that cash on its books…
Today, David Einhorn – the billionaire founder of the Greenlight Capital hedge fund – initiated legal action to block Apple from changing its corporate charter so it would be prohibited from issuing preferred shares (a type of exchange-traded debt instrument that pays shareholders a fixed yield).
Einhorn, an Apple shareholder, also issued a press release urging fellow shareholders to vote against Apple's proposal, to prohibit preferred-stock issues. Noting the company's shares are down 35% from their peak, Einhorn outlined an alternate strategy for unlocking the value represented by Apple's cash holdings...
Apple could distribute high-yielding, tax-efficient preferred stock to existing shareholders at no cost. This new type of easily tradable preferred security would allow Apple to take advantage of the market's appetite for yield while preserving future operating and strategic flexibility. Importantly, we believe this strategy would require no immediate use of cash other than the ongoing dividend, and would not pose any maturity, re-financing, balance sheet, or default risk.
For example, Apple could initially distribute to existing shareholders $50 billion of perpetual preferred stock with a 4% annual cash dividend paid quarterly at preferential tax rates. Once a trading market is established and the market recognizes the attractiveness of a highly liquid, steady-yielding instrument from an issuer backed by Apple's unmatched balance sheet and valuable franchise, the Board could evaluate unlocking additional value by distributing additional perpetual preferred stock to existing shareholders. With this conservative action, Greenlight believes the Board could unlock hundreds of billions of dollars of latent shareholder value.
Assuming Apple retains its price to earnings multiple of 10x and the preferred stock yields 4%, our calculations show that every $50 billion of perpetual preferred stock that Apple distributes would unlock about $30 billion, or $32 per share in value. Greenlight believes that Apple has the capacity to ultimately distribute several hundred billion dollars of preferred, which would unlock hundreds of dollars of value per share. Further, Greenlight believes additional value may be realized when Apple's price to earnings multiple expands, as the market appreciates a more shareholder-friendly capital allocation policy.
Private-equity giant Kohlberg Kravis Roberts (KKR), recommended in Frank Curzio's Small Stock Specialist newsletter, just announced blockbuster earnings...
KKR's net income jumped 22% in the fourth quarter to $347.7 million, capping its most profitable year since going public in 2010. The company also raised more money than in any other year and returned a record amount of capital to investors...
Assets under management totaled $75.5 billion at year-end, up from $59 billion in 2011. And KKR returned $10.6 billion to investors, taking profits on its HCA (health care) and Dollar General deals.
The rising market also pushed KKR's investments up $10 billion.
Frank recommended KKR was a way to profit from the European debt crisis... About nine months ago, during the heart of the crisis, regulations forced European banks to sell their risky assets for less than $0.50 on the dollar. And European companies couldn't raise the cash to buy them. That left the door wide-open for KKR... And the debt it purchased has already made a profit.
Here's what Frank wrote to subscribers in yesterday's Small Stock Specialist update:
KKR shares are not done moving higher. Over the past few years, mutual funds have drastically underperformed their benchmarks like the S&P 500 Index. According to Goldman Sachs, an astounding 88% of active stock funds underperformed the S&P 500 in 2011. Last year, 65% of large-cap funds underperformed the S&P 500.
Mutual funds were not the only asset managers to struggle. The Economist magazine reported that the S&P 500 Index has outperformed the average hedge fund index for 10 straight years – with the exception of 2008, when all stock-related funds got crushed.
This is leading to a huge change in investment policy at pension funds.
Institutional pension fund assets topped $30 trillion last year. That's a new record. And right now, management teams that help allocate this cash are turning to private equity companies to increase their returns. This is great news for KKR. The company has a history of blowing away its benchmark year after year.
For example, last month, KKR raised a quick $6 billion for a new Asian private-equity fund. The fund was oversubscribed. KKR now has over $20 billion invested in Europe and China. And pension funds are lining up to give the company more cash.
Small Stock Specialist readers are up 30% on Frank's recommendation... And he believes the massive amounts of credit being produced today and lack of yield in the market will push more and more funds into KKR.
Regular readers know several of our analysts see great values in gold stocks. With the sector in general trading for near-record-lows versus the actual price of gold, there's a huge amount of room for gold stocks to run higher from their current beaten-down levels.
Our friend and colleague John Doody agrees. John is the force behind the Gold Stock Analyst advisory. Serious gold-stock investors (including many hedge funds and mutual funds) consider John's work to be mandatory reading. He has developed an elegant system for valuing gold stocks according to their annual gold production, growth profiles, and actual ounces of gold in the ground. He's used this system to build an incredible track record – and substantial personal fortune.
If you're interested in John's research, and you have the means to make it to Florida later this month, we encourage you to sign up for his Annual Investor Day, which will be held in Ft. Lauderdale, Florida on Sunday, February 24. It will be held at the famous Hyatt Pier 66 Hotel, which overlooks the marina and Intracoastal Waterway.
John and his staff have put together an amazing list of gold experts and mining executives to speak at the event. If you're looking for a great place to escape the winter for a while... and if you're interested in learning the world's best opportunities in gold stocks, we encourage you to attend. Several Stansberry & Associates analysts plan to attend the conference. You can learn the specific details by clicking here.
New 52-week highs (as of 2/6/13): WisdomTree Japan Hedged Equity Fund (DXJ), Fidelity Select Medical Equipment & Systems Fund (FSMEX), ProShares Ultra Health Care Fund (RXL), Johnson & Johnson (JNJ), 3M (MMM), Chicago Bridge & Iron (CBI), Hershey (HSY), American Financial Group (AFG), Chubb (CB), Brookfield Asset Management (BAM), Steel Dynamics (STLD), Becton-Dickinson (BDX), Medtronic (MDT), BLADEX (BLX), Cheniere (LNG), Procter & Gamble (PG), and Walgreens (WAG).
A light day in the mailbag... One subscriber asks about naked puts. Drop us a line here at feedback@stansberryresearch.com.
"How can I learn how to sell naked puts and how much money do I need." – Paid-up subscriber Bill Myricks
Goldsmith comment: Back in the fall, Brian Hunt and I produced a series on how to start selling puts. You can access it for free by clicking here.
As far as how much money you need to get started… There aren't one-size-fits-all answers to these kinds of questions. (And as you know, we can't give personalized advice.) But as a general guideline… Dr. David "Doc" Eifrig tells his Retirement Trader subscribers that if they sell puts on margin, they'll need around $800 for each trade. Folks who sell them fully covered need about $4,000 for each trade. He also notes that if you hold each trade for about two to three months, you'll need around $12,000-$15,000 at any given time.
"Porter – the world is full of stupid people who misunderstand things, which is why you get those nasty letters. I teach stupid college students (you wonder how they got out of high school), who will grow up to be like your belligerent subscribers. Just let it roll off your back." – Paid-up subscriber Gaynell Stone
Regards,
Sean Goldsmith
Delray Beach, Florida
February 7, 2013