Intel's primary market is declining. It has delayed entry into the mobile-computing and phone markets. It's not using much more than half of its very expensive manufacturing capacity. And yet... Intel is still capable of generating a 58%-plus gross profit margin. Compare that with Taiwan Semiconductor (which we'll discuss in a minute), which generates less than a 50% gross margin... and Taiwan-based UMC Corp, which earns just a 19% gross margin.
Even with PC shipments crashing and excess capacity sitting idle, Intel is still one of the most profitable, cash-gushing companies in the world. And it's one of the safest dividend-payers around. In the second quarter of 2013, with sales and profits falling, Intel earned more net profit than all but 18 nonfinancial S&P 500 companies. And the second quarter was one of its worst performances in years.
One reason Intel invested tens of billions of dollars in new manufacturing capacity is so it can get into the computer-chip "foundry" business. A foundry manufactures other companies' products... and it can be a great business. Taiwan Semiconductor is a computer-chip foundry. It has many of the financial clues of a great business, too... high returns on equity, consistent profit margins, decent free cash flow, a great balance sheet, and consistent dividend payments.
Porter recently sent a private e-mail to several of us at the S&A headquarters expressing his concern about the markets today.
What he was seeing in the market was alarming, and he wanted to make sure we were aware of his thoughts.
To ensure all of our readers also understood the severe repercussions of what he is seeing... Porter asked True Wealth editor Steve Sjuggerud (who is bullish on the market today) to join him on a conference call to debate the state of the markets today. And he arranged for a respected New York hedge-fund manager to take part, as well.
We're granting you access to this call tonight. But first, we'd like to take a moment to explain Porter and Steve's thoughts on the market today...
Right now, Porter Stansberry and Steve Sjuggerud are having one of the biggest disagreements of their careers... And how this disagreement plays out could have huge implications for your ability to protect and grow your savings...
We touched on this disagreement in the August 21 Digest. In short, Porter believes a severe market correction is imminent; Steve believes stocks are primed to run higher.
To clarify... In many ways, Porter and Steve agree on where our economy is headed... They disagree on when it will start to unfold. Steve knows this rally will end (as all eventually do)... And he agrees interest rates are heading higher. But Steve thinks investors can make large gains in the market before things turn down.
First, we'll discuss Steve's long thesis...
Steve has long believed Federal Reserve Chairman Ben Bernanke's massive bond purchases ("quantitative easing") and his policy of holding interest rates near zero percent would send the market to all-time highs... He calls this thesis the "Bernanke Asset Bubble." And to date, he's been correct. Stocks are near all-time highs. Real estate is up a lot from its lows. Generally speaking, assets across the board have soared.
Steve said the Bernanke Asset Bubble would result in a "great migration" into stocks... And it would play out in three parts.
Act I is when "Mom and Pop" retail investors buy the safest stocks in the world – blue-chip companies paying large and stable dividends.
In Act II, Mom and Pop shift a bit down the risk curve into Big Tech stocks, like Apple and Microsoft.
Finally, during Act III, Mom and Pop buy riskier stocks, like small caps, emerging markets, and mining stocks.
As Steve wrote in today's DailyWealth, he believes we're in the middle of Act III.
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While Steve thinks triple-digit gains are possible from here... Porter thinks we're on the verge of a major collapse.
Yes, Porter has been warning about the consequences of central bank currency manipulation and money printing for years. But he's seeing more and more signs that lead him to believe the correction is looming.
For one, the 10-year Treasury yield, the world's benchmark yield, is rising...
Yields on 10-year Treasurys bottomed at 1.58% in December 2012. Today, the yield is 2.86% (having hit a high of 2.92% on August 22). That's a dramatic correction in such a short period of time.
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And rising interest rates, Porter argues, will crush stock prices. You can read more about his argument in the August 15 Digest.
Many of Porter's most trusted indicators are flashing warning signs. For example, the number of large-cap companies trading for more than 10 times sales (Porter's benchmark for an outrageous valuation) is rapidly increasing. And margin debt on the New York Stock Exchange is near all-time highs.
As both Steve and Porter would concede... market timing is tricky. We think it's wise for investors to take into account both potential scenarios. Nobody knows exactly what will happen in the market tomorrow... or next week. The best we can do is make sure we've fortified our portfolios and protected our wealth.
That's why it's so important to understand exactly what is happening today. If you grasp the reasoning of the bulls and bears, you can make better decisions to protect yourself and your family.
In yesterday's Digest, we promised to update you on Dan Ferris' thoughts on Microsoft's $7.2 billion purchase of Nokia's handset division. Dan sent this update to his Extreme Value readers yesterday:
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Extreme Value subscribers can read the most recent issue for his specific recommendations regarding Microsoft.
New 52-week highs (as of 9/3/13): Fluidigm (FLDM).
A rare note of praise in today's mailbag. Send your feedback to feedback@stansberryresearch.com.
"Earlier this year, I believe I wrote to tell you how impressed I was with your calls on [Investment Advisory recommendations Cheniere Energy and Chicago Bridge and Iron]. They were nothing short of amazing. (Granted, Bernanke may have helped a bit.)
"So I purchased the full Monty with the Flex Alliance. I really couldn't afford it, because I don't keep any cash. (I'm 'buying all the Gold and Silver I can afford.') But I bought the Flex Alliance on faith, that you could make it pay for itself.
"I just have one thing to say. SEARS HOLDING. Up $5 per share in less than 10 days? Simply incredible." – Paid-up subscriber Doyle
Regards,
Sean Goldsmith
Miami Beach, Florida
September 4, 2013