Let's start off today with big kudos to Steve Sjuggerud. While the stock market is down for the year, Steve has nailed trade after trade in True Wealth. Anyone following his recommendations has made a fortune. Last month, Steve recommended "virtual banks" Annaly and Hatteras (Annaly hit its 52-week low the day his issue came out). Readers are up 13% and 18% in one month. And that's not including the double-digit dividends both stocks pay. Steve also recommended a super-safe way to play natural gas immediately after the bottom for the year. That stock is up 20%, and readers have earned an extra 2% in dividends. In March (two weeks after gold's low for the year), Steve recommended a basket of gold stocks. Readers made 16%. And his best trade so far this year was shorting the euro in January. True Wealth readers entered the trade only thee weeks after the euro's all-time low. The euro short returned 30% in just six months.
In his latest issue, out tomorrow, Steve recommends a sector he's avoided for nine years. He says readers can safely triple their money in the next three years with these stocks. In some cases, these stocks haven't been this cheap in 25 years. And the last time book value was this low, the stocks soared 150% in two years. Plus, while the share prices have gone nowhere, sales at these companies have been soaring. And the stock is just now entering a massive uptrend. To sign up for True Wealth and be the first to access Steve's new pick, click here...
Dot-coms are alive and well and have made a few people rich over the last few years. Of the top 10 best-performing S&P 500 stocks of the last five years, three are dot-coms: Priceline.com, Salesforce.com, and Amazon.com. Priceline.com is the No. 1 performer among S&P 500 stocks over the last five years, according to data compiled by Bloomberg.
Bloomberg's list of the best five-year performers in the S&P 500 is called the Bloomberg BusinessWeek 50. Like all such lists, it's a great rearview mirror. If you want to know what has worked for the last five years, it's there in black and white. Unfortunately, it doesn't tell you which 50 will outperform for the next five years. Why don't we ever see lists of stocks that will outperform for the next five years? Surely, someone can come up with 50 stocks, out of which some might do well enough to pull the whole list's performance up over five years.
I bet I know a bunch of stocks that will perform great over the next five years... Let's find out if I'm right. I'm going to take a snapshot of the Extreme Value Model Portfolio today, Thursday, June 17, 2010. Then, I'm going to come back to that snapshot five years from now, on June 17, 2015, and we'll see how many of our Model Portfolio stocks perform well enough to get into the Bloomberg BusinessWeek 50 (whether they're in the S&P 500 index or not).
I should be able to get at least a couple in there. The No. 50 best-performing stock on the list, pharmaceutical distributor AmerisourceBergen, was up 114.9% during the period. And the average performance of the whole list was a cumulative total return of 222%. That may not sound like much over five years, but I promise you, almost nobody earned those returns over the last five years. Most people bought heavy near the top in late 2007 and sold heavy near the bottom in late 2008/early 2009. If that weren't true, those tops and bottoms wouldn't have happened as they did.
The new "circuit breakers" on S&P 500 stocks were tripped yesterday, when shares of Washington Post Co. (WPO) doubled in the space of one minute. A trade at $460 a share was followed almost immediately by a trade at $919.18 a share. Trading in the stock was halted for 10 minutes.
The new circuit breakers require a trading halt if a stock moves up or down 10% within five minutes. The SEC ordered the feature after the sharp correction a few weeks ago, during which Procter & Gamble went from $60 to $38 when it seemed as though a trader entered an order to sell a billion shares by mistake. NYSE Euronext says the 766 WPO shares traded at the higher price were a mistake, "an erroneous print," as an NYSE spokesman put it.
I have a question about this. Is it better to have circuit breakers and the ability to reverse trades and label them "erroneous prints"? Or is it better to expose investors to the full brunt of risk involved in trading public securities? Would the market be a more or less rational place if everyone remained fully exposed to the risks involved in trading against massive computer systems and strangers with billions of dollars of trading capital, all trying to take the cash out of the market that you've put into it?
Do the market's airbags save investors' financial lives? Or do they simply provide an incentive to take bigger risks, and play faster and looser with their money than they otherwise would?
Safety features often work in reverse, providing an invitation for greater risk-taking. Is that really what we want from the public securities markets? The answer, of course, is yes. That's what Goldman, Citi, JPMorganChase, and all the folks with the massive computers and billions of dollars of trading capital want. Asking them to behave differently is like asking meat packers to stop slaughtering cattle. That's why they're in business.
I have another question. Why are kooks so persistently kooky, even after their kookiness has been exposed as way too kooky? For example, why is Al Gore still touting man-made global warming? And more recently, why is Matthew Simmons such an ardent advocate of Peak Oil and more recently such a vocal detractor of BP?
The answer has been the same since whores, like Gore and Simmons, created the world's oldest profession long ago. If you want to know why kooks stay so kooky, follow the money.
Al Gore owns a piece of a carbon-credit trading firm, which he started with a Goldman Sachs alumnus. His environmentalism is a huge, ongoing ad campaign for an idea he thinks will make him richer. Same with Matthew Simmons...
Barron's says Simmons has an 8,000-share short position in BP... which explains his extremely bearish comments in the news lately, like "[BP is] going to zero." On Monday, Simmons was at the University of Maine's Ocean Energy Institute, hanging out with politicians, pitching his vision of wind turbines with blades 80 stories high. Simmons started the institute in 2007, along with a venture capital fund to develop the offshore wind power technology. Like Al Gore, Simmons cares more about making money than about the huge unnecessary expense and horrible unintended consequences of his actions.
I wrote about Simmons back in August 2005, likening him to Chicken Little for his views on Peak Oil and global declines in oil production, which are somehow still imminent five years later. Chicken Little's voice is shriller than ever. Simmons retired yesterday from the company he founded, just two days after its current CEO distanced the company from its founder and his "discordant" views of the BP oil spill.
Turning to a more credible source of insight and information... short-selling master Jim Chanos was short some large oil companies before the April 20 Deepwater Horizon explosion because drilling and exploration were eroding cash flows. From the Bloomberg interview:
If you look at their cash-flow statements relative to their income statements, you will see companies that haven't replaced reserves in years, and haven't seen any increase in revenues in years. They're borrowing their dividend. They're in effect liquidating.
The liquidation Chanos describes is a longer-term trend, one that can really hurt you if you try shorting at the wrong time. But Chanos isn't touching BP:
We haven't played BP in any way, shape or form – short or long. We have looked at BP, but, like a lot of others, we're scratching our heads. I think there's too many unknowables still.
We voiced a similar opinion in last Wednesday's and Friday's Digests. When one of the world's best analysts is "scratching his head" about a stock, it's probably best to stay away. In the same interview, Chanos said he's adding to his Ford short sale. He thinks it will struggle to compete with GM. He also believes the United Auto Workers union, which owns stakes in GM and Chrysler, will favor those companies over Ford when negotiating contracts.
We received several e-mails from subscribers unable to watch Tom Dyson's new video presentation on increasing the dividend payments you receive from U.S. corporations. If you had trouble yesterday, you can watch the video here.
New highs: Akamai (AKAM), San Juan Basin (SJT).
There was a bunch of mail in the inbox today, but Porter says he wants to answer it tomorrow. And thank goodness for that. He'll comment tomorrow on two topics I hope never to address here: religion and Rush Limbaugh.
Send us your e-mail to feedback@stansberryresearch.com. We read every one.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
June 17, 2010