I wish I'd seen this one coming...
Canadian pulp producers are commanding higher prices in the wake of earthquakes in Chile and a workers strike in Finland. Chile and Finland produce about 10% of the world's pulp, a wood product used to make paper.
Canadian pulp companies like Domtar, Canfor, and Tembec have seen their stock prices rise sharply the last few days. Tembec is up more than 40% in just the last three days and 12% today alone.
Cash flow from higher pulp prices will help the beleaguered Canadian pulp makers repair their weak balance sheets.
Looking ahead, it's not hard to see what's inevitable (though I can't say how imminent). The Finnish strike will end, as all strikes do, and Chile will eventually get its pulp capacity back. If the Canadians get their balance sheets fixed up enough, they'll live to fight another day... and they'll probably get cheap enough again for good contrarians to pick up a bargain.
Pulp makers and other commodity-related companies can make wonderful short-term speculations, but they usually make bad long-term investments.
After scouring tens of thousands of stock listings in North America, I've come up with one of the few small-cap commodity stocks I believe is an excellent long-term investment. I expect shareholders to make anywhere from five to 20 times their money over the next five to 10 years.
This little company had a market cap of around $160 million when I first found it, about a year ago. Now, its market cap is around $266 million. I bet the whole thing will sell for more than $1 billion some day.
It's now holding more than $200 million of cash and investments. It's got perhaps a dozen ongoing projects, any one of which could make the company and its shareholders many times their money. I've raised my maximum buy price three times in the past year, as the company's net asset value has nearly doubled since I recommended it.
To find out the name of this amazing little company, hailed throughout its industry for its superior management team and its financial fortress balance sheet, click here and subscribe to Extreme Value.
This morning's Wall Street Journal says our elected representatives in Congress expect to pass a takeover of our $2.3 trillion health care system that will cost just $940 billion over 10 years – $94 billion a year, on average.
It's been widely reported health care is approximately 16% of our $14.3 trillion GDP. The math I learned says 16% of $14.3 trillion is $2.3 trillion. But "White House math" says 16% of the economy is just $94 billion. What's more, the White House will reduce the cost of health care by 96% while offering $2.3 trillion of goods and services to another 30 million or 40 million people.
No wonder I don't see eye to eye with the government. They're using a different number system! I'm not sophisticated enough at mathematics to figure out what number system the White House is using. I'm hoping a mathematician among our readers can help me...
By the way, I said in Tuesday's Digest the government's massive role in the financial crisis was being blacked out in the media. That's not entirely true. A financial advisor named Less Antman chronicled the government's role in the financial crisis in a short piece called "Too Big To Succeed."
I also told you on Tuesday how famous investors like Bruce Berkowitz and John Paulson were taking advantage of the government's heavy-handed regulation and backstopping of the financial system.
Well, Berkowitz and Paulson are late to the party. They've got nothing on Amy Friend, the chief counsel to Senate Banking Committee Chairman Christopher Dodd. At the height of the crisis, when the government was making plans to bail out AIG and other large financial institutions, Friend bought $1,000 to $15,000 stakes in Morgan Stanley, Wells Fargo, AIG, Fannie Mae, Freddie Mac, Federal Home Loan Bank bonds, and Fannie Mae debt.
Friend bought FHLB and Fannie Mae debt in June and July 2008, just days before President Bush signed a bill that gave the government housing finance agencies big cash injections from the Treasury. Friend is still in the game today, helping to draft Dodd's sweeping overhaul of the financial regulatory system.
If you or I did what Friend is doing, we'd wind up like Martha Stewart. But for her, Senate rules say it's perfectly legal. No SEC investigation. No insider trading violation.
Today's new high list contains seven Extreme Value stocks. I'm proud of what I do, and I believe I'm good at it. But you should always be aware of the difference between being good and riding a bull market.
I just got my latest copy of asset manager/market historian Kevin Tuttle's 100-year price graph of the Dow Industrials. It shows stocks pushing up against bubble-like valuations, measured in 10-year average price-to-earnings ratios on the S&P 500.
It feels so good to own stocks right now... and that's usually not a good thing. Be careful out there. Never forget the only thing that determines your return is the price you pay. If you pay a high price, you'll get a low return. And most stock prices are high today.
I've personally sold out entire positions recently, as the market pushed them toward fair value. I imagine you own at least one stock that's fairly valued or even overvalued. You shouldn't hold and wait. You should sell. The best investors always buy and sell early. They generally do much better than those who buy and sell late.
New highs: Fairholme Fund (FAIRX), Washington REIT (WRE), Financial SPDR ETF (XLF), McDonald's (MCD), Kinder Morgan Energy Partners (KMP), Keyera Facilities (KEY-UN.TO), Intel (INTC), Procter & Gamble (PG), Longleaf Partners (LLPFX), Sequoia Fund (SEQUX), Prestige Brands (PBH), Philip Morris (PM), Automatic Data Processing (ADP), Akamai (AKAM), Steak 'n Shake (SNS), Carpenter Technology (CRS), American Axle (AXL), MAG Silver (MVG), Westmoreland Coal (WLB).
One subscriber tells us about snowboards in Vermont, NAFTA, and Idaho potatoes. See, we'll publish (mostly) anything. Send us a note: feedback@stansberryresearch.com.
"Since you're light on jam, let me add some junk. Burton snowboards stopped production of snowboards today in Vermont, the home of socialist Sanders and Leaky Leahy. People are leaving Vt because the left wing in our capitol raised cap gains and reduced estate exemptions. Where is John Galt? Is Obama a Muslim sent to ruin America without firing a shot? Will the healthcare bill trigger riots? Does anyone dare stand up to NAFTA whose intent was to make the world equal? It is very simple. No.
"WE will wait until we make nothing, and Washington can't send checks anymore, and Rome burns... and we fire or worse all the idiots we have sent to Washington to represent U.S. This year will be a once in a lifetime moment to fire all senators and reps up for reelection, as there isn't one of them worth a sack of Idaho potatoes. Tell our smudgepots in Washington two terms is enough, and we need to make stuff in good ole USA not China. Oh God, I could go on but who listens. We all beat the same drum." – Paid-up subscriber TWM
Ferris comment: You're wrong about U.S. versus Chinese manufacturing. The more we "protect" American jobs, the poorer we become. Every protected job is only so much misallocated capital, which is another way of saying so much destroyed wealth.
"In response to Michael Woods e-mail, I bought the Feb 20 CAL puts and sold them 7 days later for a 91% profit." – Paid-up subscriber Frank
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
March 18, 2010