Sandy's aftermath...
Ugly pictures of Hurricane Sandy's devastation are everywhere. I (Dan Ferris) saw a small apartment building in New York with its brick facade ripped off and a fleet of taxis in New Jersey sitting in about four feet of water. You've probably also seen pictures of the dozens of homes that burned to the ground at the Jersey shore. And worst of all, last I heard, more than 50 people died in the hurricane.
If you're without power or worse due to Hurricane Sandy, our thoughts and good wishes are with you today. Our own Sean Goldsmith is in his New York apartment without power, cell phone, or Internet. Hang in there, Sean!
Although Sandy disrupted life in Baltimore – where S&A maintains its headquarters – the damage wasn't as extensive... We're happy to report the office is back up and running, and our customer service representatives are again available by phone. If you have a question about your subscription, you can reach us at 888-261-2693.
Apple's share price broke below $600 Friday for the first time since July. Today, the stock trades in the $590s. It hasn't closed below $600 since July 30.
Apple fired two executives earlier this week, including mobile software chief Scott Forstall, the company's most controversial executive. Forstall was close to late Apple co-founder Steve Jobs. The Wall Street Journal suggests Jobs' "outsized personality" kept feisty characters like Forstall in check. Apparently, the last straw for current Apple CEO Tim Cook came when Forstall refused to sign an apology letter Cook issued to Apple customers for the company's bug-laden and widely criticized mobile maps software.
Apple also fired John Browett, the recently hired head of Apple's retail stores. Browett was also thought to be difficult to work with and a poor fit for the Apple culture. Makes you wonder how good Jobs' successor Tim Cook is at finding new talent that fits Apple's unique culture.
Apple's business trades at less than 10 times earnings, once you factor out its excess cash holdings. That seems pretty cheap for such an iconic business... but I doubt I'll ever recommend the stock. I have this nagging fear it will end up like Dell. The computer-maker was the darling of the 1990s. I even heard one analyst say Dell was the best-performing stock of the 1990s.
But today, Dell is struggling. It turned out, PCs and laptops were more like commodity products than branded consumer products. Apple has more than 60% of the tablet market today. How long will that last? Definitely not forever... and maybe not much longer.
Microsoft's new Surface tablet is a huge step in the right direction. Apple's iPads are more like big phones than small computers. I can't do real work on mine. I won't know for sure until my new Surface arrives at my door, but it looks like I'll be able to do real work on it… because it runs on a version of Microsoft's updated Windows 8 operating system. That's smart of Microsoft. We'll see how it sells.
Porter's prediction of lower oil prices is already coming true.
Western Canada Select crude has crashed to $56.24 a barrel, down 32% from last November's $82.26 price tag and about 26% below the year-to-date average price of a little more than $76. Western Canada Select is a blend of heavy oil-sands crude and conventional crude oil. It's lower quality than West Texas Intermediate (WTI) crude, whose price is the benchmark for U.S. oil. So Western Canada Select typically sells at a discount to WTI.
The problem is that 99% of Canadian oil-sands petroleum is sold in the U.S... where we have more crude oil than we know what to do with these days. So all oil prices are falling, and oil-sands prices are nearing the point where it's literally not worth extracting the stuff.
A report by market research firm Wood Mackenzie said some new oil-sands projects would need $90-$100 per barrel oil prices to make economic sense. Others would need at least $65 per barrel to work. Those projects won't see the light of day any time soon.
Worse... many current oil-sands projects require $45-a-barrel oil to make a profit... With prices now at $56 a barrel, how long will it be until most of the Canadian oil-sands industry is operating at a loss?
The massive new oil and gas boom that prompted Porter's prediction of lower oil prices is creating an opportunity for investors to earn large, growing streams of tax-advantaged income for decades to come.
The income I'm talking about is already pouring into investors' pockets from the pipeline industry. The United States' 210 natural gas pipeline systems encompass more than 305,000 miles of pipe, according to the federal Energy Information Administration. All our natural gas pipelines laid end to end could cross the continental United States more than 100 times.
These pipelines carry natural gas, crude oil, gasoline, jet fuel, ethane, propane... and many more valuable energy commodities.
The huge oil and gas boom in the U.S. today means demand is greater than ever for pipeline capacity. Phil Blancato, CEO and president of New York-based asset management firm Ladenburg Thalmann, says: "There is demand for $200 billion to $300 billion of new pipelines."
That's a huge opportunity. It would approximately double the current market cap of all of today's pipeline stocks. While new pipeline companies will surely be formed to address some of that demand, existing pipeline companies will handle much of the growth.
That's good for investors who know how to find great pipeline stocks. Our research shows that one area of the pipeline sector has outperformed nearly every other asset class for the last 10 years... earning investors more than 16% a year in returns.
If you'd put $10,000 into pipeline stocks 10 years ago, you'd have more than $50,000 today compared with less than $30,000 if you'd bought real estate investment trusts and utility stocks... and less than $20,000 with U.S. stocks in general. And with the U.S. energy boom creating massive new pipeline demand, it's likely the pipeline stocks will keep growing for many years to come.
As you can see, pipelines tend to treat investors very, very well. So I've prepared a special 32-page report, featuring seven pipeline stocks.
My research partner, Mike Barrett, and I scoured the universe of pipeline stocks to come up with the best recommendations for subscribers to my monthly income newsletter, The 12% Letter.
We even developed a proprietary, seven-point system to make certain we only recommend those pipeline stocks that do the best job of creating shareholder value.
I'm fairly certain you won't find anything like this report anywhere else. The report is called "An A.O.P. Retirement." It's free to all 12% Letter subscribers. We'll tell you what A.O.P. means in tomorrow's Digest, and why we believe it's your best bet for a safe, tax-deferred income for the next 10 years.
So if you're in the market looking for an investment that'll provide you with a safe, growing, and tax-advantaged income, you'll want to look for tomorrow's Digest.
If you absolutely can't wait for tomorrow, you can get access to The 12% Letter (without sitting through a long promotional video) and read the full "A.O.P. Retirement" report by clicking here.
Longer term, rising natural gas prices are also part of Porter's global energy outlook… but it has nothing to do with the weather. As oil and gas companies throw themselves into producing more and more crude from domestic shale formations, they're shifting operations away from gas resources. Meantime, super-low gas prices are spurring demand. Falling production plus rising demand equals higher prices.
New 52-week highs (as of 10/30/2012): Markets were closed again yesterday due to Hurricane Sandy.
Not everyone is bearish on crude oil like Porter is. I was in New York last week and heard one analyst give a bullish tirade on crude oil prices. Where do you think oil prices are headed? Tell us at feedback@stansberryresearch.com.
"A recent article in [the Wall Street Journal] talked about the problems of small banks complying with Dodd-Frank [regulations]. They are predicting many small banks going out of business." – Paid-up subscriber Michael C.
Ferris comment: The Dodd-Frank banking regulations (passed in the wake of the 2008 financial meltdown) aren't fun for anybody. But the bank model that is truly toast is the small independent community bank. The government has basically eliminated that one from existence. That figures, doesn't it? The government and regulators are constantly making rules that just happen to give big banks and corporations a wider competitive moat... and which make life more difficult for smaller competitors. Capitalism would be a lot less cutthroat and a lot less tilted toward big, wealthy interests without the government involved.
Also, new capital requirements will eliminate certain types of securities (called "trust preferreds") from capital requirements. Banks that can't replace those securities with eligible capital will be out of business. They won't have enough capital to make loans. So they'll have to be acquired. Many smaller banks with such securities outstanding are calling them in now. We'll see how they fare over the next few months.
"Is there any chance that prior to the credit crisis of 2007 that real estate prices were pushed so high that we could experience a secular bear market for the next decade? My gut tells me tech is a better investment around 12-15 times trailing 12 month earnings (CSCO and MSFT) as we begin to see a revolution in devices with all the new developments from the "super-material" graphene. I feel like we're set up for another tech bubble, not a real estate bubble." – Paid-up subscriber Sean S.
Ferris comment: Porter has begun to write about tech stocks for his Investment Advisory subscribers. He's observed that while investors have scorned the sector… many of the strongest companies have consistently grown their earnings and represent good investments today. He says we may see a revival in the sector over the next decade.
But real estate is also a good investment… Many of our writers, notably Steve Sjuggerud, have identified real estate and housing as an excellent opportunity. And as the feedback e-mail below will show, plenty of folks are making money on that idea…
"Thanks for saying 'buy real estate' last spring in several of your newsletters. On my birthday in April, my wife said 'what do you want to do for your birthday today?' Since I had just read your 'buy real estate' articles over the past couple of weeks, I said 'I'd like to go shopping – for a house. She was shocked, but since we had recently saved up a pile of cash... we set out and that day found a cute craftsman style house in a good neighborhood that we loved. We planned to make a rental out of it.
"About halfway into the remodel of the kitchen, we decided to give the 'executive rentals' a try. Our town (near the Eagle Ford shale – of which you guys speak often) has a shortage of hotels. They are always booked and get $150+ per night and so we furnished this little cottage luxuriously with high end furnishings (half of which was garage and estate purchased) and house hold items – including a 55-inch wall-mounted HDTV, added full cable package, all bills paid, and we just signed an oil executive for 5 years at $3000 per month! This is a house that would normally rent for $950 per month. Thank you for the real estate "push"! I'm going to try it with a second house if I can find another like it." – Paid-up subscriber Mark
Regards,
Dan Ferris
Medford, Oregon
October 31, 2012