You may recall when Porter turned bullish on U.S. real estate in February…
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How would I recommend adjusting this allocation today, given the situation in the markets and the risks to the U.S. dollar?... I've greatly increased – more than doubled – my exposure to real estate. I've been buying cheap apartment buildings in south Florida out of foreclosure. I've been buying unique, trophy real estate there, too. I think the middle of the market is still going to fall a lot... But the top end and the bottom end represent an outstanding value – one of the best opportunities of my life. |
Well, Porter's not the only one going overweight real estate... Billionaire cable magnate John Malone is loading up. According to the trade publication The Land Report, Malone is now America's largest individual landowner with 2.2 million acres – surpassing Ted Turner. His purchase of 1 million acres of timberland in Maine and New Hampshire this year placed him at the top.
Malone is also looking for other large purchases in the Northeast U.S. and Canada. He said land is a good buy today because of low borrowing costs and prices. He added, real estate "is a pretty decent hedge on the devaluation of currency."
Unlike Malone, Nouriel Roubini isn't looking to buy assets right now. He's looking to sell. Roubini, founder of Roubini Global Economics, is a doomsday-scenario guy. He made a name for himself via relentless media appearances throughout the crisis. And he built his consulting firm into an 85-person shop. But now, he's selling.
How has the business of one of the best-known perma-bears performed? According to people who have seen the company's books, the firm had revenues of $14 million this year... And it will lose $2 million. It projects 8% revenue growth into 2012, followed by 40% revenue growth in 2013. Hmm... How much would you pay for a business that's bleeding cash, whose largest asset is a New York University economics professor?
Buying back shares is one of the best ways for companies to return value to shareholders. But it only works if the company in question is buying its shares when they're undervalued (if shares are expensive, dividends are normally a better return of value). Billionaire hedge-fund manager Leon Cooperman told the best story about share buybacks at the 2007 Value Investing Congress in New York. He spoke about Henry Singleton, the former CEO of Teledyne...
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Between 1972-1984, Singleton repurchased 90% of Teledyne's outstanding stock – but he would only buy back shares when they were severely undervalued. When Teledyne's stock was expensive, he would use it to make acquisitions. Although Singleton never received more than $1 million per year in total compensation, he became a billionaire by investing in his own company (and thanks to his remarkably adept buybacks). – December 4, 2007 Digest… |
In an e-mail today, our friend Whitney Tilson pointed out another company that has done a great job of buying back stock: IBM. The below excerpt is from the Wall Street Journal…
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The case of International Business Machines Corp. shows how buybacks can be a boon to both a company and its investors. Since the end of 2006, according to regulatory filings, IBM has repurchased $60.3 billion of shares that would be worth more than $91 billion today. More than 60% of those 504 million shares remain off the company's books; that means they haven't been replaced, for example, by shares issued as part of executive pay packages. |
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Partly as a result, IBM's shares outstanding have declined by a fifth over that period and its stock price has nearly doubled. While it has increased its per-share dividend by 150%, its overall dividend costs have increased just 100%. |
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"Over the last decade, we invested about $70 billion in capital expenditures and acquisitions (116 companies) and nearly $60 billion in research and development targeted toward high-value areas," an IBM spokesman said in a statement. "We returned $89 billion to our shareholders as share repurchases and at the end of 2010 our quarterly dividend was five times higher than in 2000." |
I've been writing about the benefits and pitfalls of share repurchases, acquisitions, and other uses of corporate capital for years. It's extremely rare to find a company that's good at making acquisitions. Most of them destroy value.
But there are a few companies that have grown into World Dominating businesses by acquiring other wonderful businesses along the way. Some of the great acquisitions of the last several years were InBev's purchase of Anheuser-Busch, Procter & Gamble's purchase of Gillette, and Mars' purchase of Wrigley's. When one wonderful business buys another one, it usually turns out well.
When these companies get big enough, they tend to grow much more slowly. So they don't need to spend so much money growing their businesses any more. But because they're such high-quality businesses, they remain highly profitable.
If management is smart, it eventually starts paying a dividend and repurchasing large amounts of stock. It starts returning the business' excess capital and profits to shareholders... who do own the company, after all.
I've got a whole list of companies like this. I call them the World Dominating Dividend Growers, because they are the largest companies in their industries and they have raised their dividends every year for decades.
If you're tired of the stock market going up and down, day after day, you should learn more about the safest – and lately, the cheapest – stocks in the world. I'll have a brand-new World Dominating Dividend Grower recommendation in the next issue of The 12% Letter. To get access to The 12% Letter – including our complete list of World Dominating Dividend Growers on the back page of every issue – click here.
Shares of UniCredit, Italy's largest bank – and a bellwether of the deteriorating European economy – fell more than 12% today. They halted trading at around 0.92 euros.
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New 52-week highs (as of 10/12/11): None.
In today's mailbag... Two subscribers write in lauding our services. We always suspect the nice notes come from relatives or drunks... Send your comments to feedback@stansberryresearch.com.
"I can hardly wait for the Friday Digest essays. I have begun to encourage friends who would do well to learn more about investing to subscribe to one of your less expensive publications just for the education they can receive from the digest and other publications! I learn something valuable every week! Besides, it works a lot like the stock market. The weak hands are flushed out by emotion leaving the strong hands to reap the rewards!" – Paid-up subscriber Don
"I just want to make sure I give my thanks to you guys for the Digest. I know it comes out at night, but I read it every morning first thing. The Friday Digests have been very educational and enlightening. Between reading the Digests, the 12% letter, and [Stansberry's Investment Advisory], my views and investments have totally changed over the past year. Before I thought growing wealth was about picking the right stock or option and that would create capital gains. Now, I think of stocks almost as pieces of real estate property. I use these stocks to generate income via dividends and covered calls and am a lot less worried about how the market views/prices my security. Thinking of securities in this way, I have decided to buy into much better companies (world dominators). I only use a small portion of my portfolio to speculate (to get my gambling fix).
"I recently started working for an advisory group through Morgan Stanley. MS's Global Investment Committee (GIC) just changed their views from Highly 'risk on' to Moderately 'risk off.' I thought it was funny how you guys have been preaching the market collapse for a while now and they are just figuring it out. David Darst said this change in views has a lot to do with some economic cycle group that recently declared that recession was eminent (he noted that this particular group has been right about the last 3 recession, no false alarms).
"Anyways, keep up the good work. I hope to one day (with hard work and good investments) be able to subscribe to all your publications, the alliance group, and whatever else you have to offer. You have me hooked, I'm a lifer." – Paid-up subscriber John
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
October 13, 2011
Porter's real estate call... Malone is bullish on real estate, too... Roubini cuts his losses... Singleton's triumph... Tilson on IBM... The best deal on the planet...