Spain is OK!...

Spain is OK!... Central banks to the rescue... CNBC and silly data... Revisiting Wal-Mart... How to value a business... Why I said to avoid Sears (and a nearly 40% loss)... Curzio's 'Eagle Diesel' investment play...

 All is well in Spain, "the most important country in the world." A Spanish Treasury bond auction brought in a total of 2.07 billion euros, a little higher than the targeted amount. The Spanish Treasury received bids worth more than 6.8 billion euros – more than three times the amount sold! If you believe the market is always right, you have to believe the Spanish crisis is over.

But if you believe Mr. Market is often delusional... you have to wonder what bond-buyers are thinking. Would you lend to the Spanish government for 10 years and accept less than 6% interest in return? I (Dan Ferris) don't know if I'd accept even 16%.

I'm reminded of value investment guru Ben Graham's cautionary advice for the nonprofessional security buyer: Never put money into a low-grade enterprise on any terms. Aren't most modern Western governments "low-grade enterprises"? Most are poorly run... too large... and invasive.

I don't know what'll happen in Europe. Macro predictions about a few dozen different countries' economies aren't really my cup of tea. I'm just skeptical that Spanish Treasury bonds are worth owning. Isn't Spain effectively bankrupt? Will a 2 billion-euro bond offering cure its ills? It's hard to believe...

 But not to worry. Central banks will save us all... China's central bank cut interest rates today, its first cut since the depths of the financial crisis in December 2008.

And in remarks today to Congress' Joint Economic Committee, Fed Chairman Ben Bernanke said, "The situation in Europe poses significant risks to the U.S. financial system and economy and... As always, the Federal Reserve remains prepared to take action as needed..."

I must ask: Has any central banker ever cracked open a history book? The simple lesson of history suggests that central banks make credit cheaper and bad things happen. Markets soar and crash. Whole economies go bust. It never turns out well.

Yet, here we are again. Central bankers are prescribing (and most of the market is praying for) more "hair of the dog that bit us." Eventually, this poor, bedraggled mutt will run out of hair. What then?

 Yesterday, the S&P 500 rose by the largest amount in the past 100 days, just a few short days after its biggest loss over the same period.

Now... you won't have to watch CNBC for at least a month. The financial cable TV network seems to exist simply to tell you which securities just went up or down, by how much, and what it means. According to CNBC, every tick of every stock, bond, and currency has a deeper meaning, and its crystal ball is second to none. Don't believe it...

If second-by-second commentary on movements in securities prices isn't worth anything, what is valuable? What sort of information can make you money or at least prevent you from losing it?

Simply put... to do well in the stock market, you need to learn how to value a business. If you know what a business is worth and the market suddenly values it for a lot less... you can make some money buying it and waiting until the market proves you right.

That's what happened with global retail giant Wal-Mart recently. We thought the Mexican bribery scandal was a nonevent and said so. When the scandal broke, I wrote, "This is EXACTLY the sort of thing that makes a World Dominator a great buy... It is a 'huge but solvable one-time problem,' to use Warren Buffett's phrase."

But the market didn't agree... The market is the ultimate CNBC junkie, swearing by every word it hears. So when CNBC, the Wall Street Journal, and every other financial news source shouted, "Mexican bribery scandal at Wal-Mart!"... the company's shares fell nearly 8% in three trading sessions.

Was Wal-Mart's business suddenly worth 8% less? Of course not. Wal-Mart earned more than $43 million in profit per day last year. Will the bribery scandal cost even half that much? Maybe... and let's say it'll cost a whole lot more. Let's say it'll cost $8 billion, half a year's net profit. It would hurt, but it wouldn't dramatically change the value of the business. If Wal-Mart paid out a dividend in that amount, the market would cheer. But either way, the impact on Wal-Mart's future earnings power would be identical.

 I can imagine the feedback already: "Wait a minute, Ferris! Are you telling me Wal-Mart could light 50% of its annual profit on fire and not dramatically change the value of the business?"

Yes, I am... Or at least, it wouldn't change Wal-Mart's value much over the long term. As Ben Inker, who heads the asset allocation group for the value-oriented money-management firm GMO, has pointed out... roughly two-thirds of all corporate value lies 20 years or more in the future. Most people can't think past the next 20 minutes (or beyond the next CNBC commercial break). So they fare poorly and have no perspective on the value of a fantastic, World Dominating business like Wal-Mart.

 In essence... you value a business by estimating all the cash profit you'll be able to take out of it over the life of the business. We expect Wal-Mart to be around for decades to come. So you have to ask, if you think the Mexican bribery scandal will cost Wal-Mart $9 billion in fines (and I doubt it'll be that much), what's half a year's profit compared to decades and decades of slow but steady growth?

So it's no surprise that Buffett bought more Wal-Mart shares during the darkest few hours of the Mexican bribery scandal. He's become a billionaire simply by knowing what businesses are worth and paying a lot less than that.

Were you buying Wal-Mart when the headlines were screaming about the scandal and the share price was falling almost 8% in three days? If you had bought then, you'd have gotten the stock for less than $60 a share. It's trading around $65 today, a big move for a giant company like Wal-Mart.

 Once you learn about how to value a business, you start looking around for highly valuable businesses like Wal-Mart, so you can buy them when their share prices are down.

But you also start looking for businesses to avoid (or sell short). Wal-Mart fends off competition and generates a growing stream of cash profits every year. Sears Holdings shrinks. It's buckling under the weight of competition from Wal-Mart, Amazon, Target, and other big retailers.

That's why, in our February 23 Digest, I wrote...

Wal-Mart is highly valuable because it fends off competition. That's why it doesn't really change much from year to year, except by selling more, making more profit, and raising its dividends. Sears has lots of trouble fending off competition. That's why it's been less and less profitable every year for the past six years.

Wal-Mart doesn't really go through major changes. Sears is undergoing its second major corporate transformation in less than a decade, as management tries to salvage what value remains. Never mind the details of the transformation. The fact there is one at all is a bad sign.

Boring businesses just keep gushing cash. They don't change. They're the best stocks you can own – like Wal-Mart. Businesses that constantly need to fix themselves and can't seem to get on the right track, like Sears, are some of the worst stocks you can own.

The source of business' value is cash profits. Without a growing stream of cash profits, a business' value tends to shrink. Shrinking profits lead to shrinking stock prices. If you'd taken my advice and avoided Sears Holdings starting in late February, you'd have saved yourself a lot of pain... the stock price has shrunk by nearly 40% since then.

 If you're interested in learning about how to value a business, which businesses are most valuable, how to find more Wal-Mart-like businesses, and how to avoid businesses like Sears Holdings... you should consider a trial subscription to The 12% Letter. This is our newsletter for people who want to learn how to gain a huge, valuable competitive advantage over other investors. That advantage is the knowledge of how to value a business... and using this knowledge to buy companies that pay the biggest, safest, most sustainable dividends in the world.

If you're tired of the ups and downs of the stock market... if you're tired of the volatility and risk with most stocks... I urge you to become familiar with these stocks, which we've labeled "World Dominating Dividend Growers." They are basically their own stable, safe, and lucrative asset class.

To help the largest number of our readers learn about this idea and use it to form the core of a portfolio... we make the research in The 12% Letter available for an extremely low price... and we make an extraordinary money-back guarantee. We truly believe every individual investor should focus on these stocks. Selling the letter at a low price can help it reach as many people as possible. Right now, The 12% Letter only costs $39 for a year. Virtually anyone can afford it, even a high-school student. Come to think of it, it wouldn't make a bad graduation present for a child or grandchild...

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 Frank Curzio's Small Stock Specialist subscribers scored a big win this week... Westport Innovations, which makes natural gas-powered engines, soared more than 20% after the company announced a deal with Caterpillar to develop engines for Cat's machinery.

Westport has been good to Frank's subscribers... He first recommended the stock in February 2011 as part of his "Eagle Diesel" thesis... the idea that the new glut in natural gas supplies would lead it to become a major transportation fuel in the United States. Last April, he recommended readers could close their positions for a gain of more than 130%.

Shortly after the sale, Westport pulled back sharply... and Frank used the weakness to re-recommend Westport. As of yesterday's close, Frank's recommendation is up 12% (and it's up even more in intraday trading).

 We've been following Frank's Eagle Diesel thesis for months in the Digest... We think it's one of the largest investment trends of the next decade. You see, natural gas as a transportation fuel is now 50% cheaper than regular gasoline. This huge price differential is causing some of the larger trucking fleets in the U.S. to switch from diesel to natural gas. And with more and more vehicles guzzling natural gas, there's huge demand for fueling stations...

According to the Census Bureau, the U.S. has more than 100,000 gasoline fueling stations (to serve 234 million vehicles). But we have only 1,000 natural gas fueling stations. We'll need thousands more to support the trucking industry's switch to natural gas...

Several U.S. companies are opening natural gas fueling stations... But as Frank says, "We are still in the early stages of the natural gas infrastructure trend. Investors can still cash in on this trend by investing in some of the companies building 'America's Natural Gas Highway.'"

Frank believes once these stations are built, major car manufacturers like GM, Ford, and Toyota will start producing cars that run on natural gas. It's a huge trend... one that could make you rich. To sign up for Small Stock Specialist and receive a special report Frank just released discussing all the companies positioned to benefit from the U.S. switch to natural gas (without watching a video), click here...

 New 52-week highs (as of 6/6/12): Utilities Select Sector SPDR Fund (XLU) and Altria Group (MO).

 Lots of kind notes in today's mailbag... It's always gratifying to hear about readers' successes... Send your e-mail to feedback@stansberryresearch.com.

 "After my husband's death in 2000 I started trying to learn how to invest the money I was left plus what I had saved to last me throughout my life and hopefully leave a little to my two children. I first attended an Investment U seminar in Durham-Raleigh, N. C. That was when I met Steve [Sjuggerud].

"I was so impressed I started reading everything I could about him. I learned about the Oxford Club and joined that on the Director's level. I soon learned about Porter Stansberry and joined Stansberry Research as an Alliance member. Throughout these years I have met them both personally at some event, either in South America or Vancouver. I have been so impressed with both of them and also Alexander Green of the Oxford Club. My greatest 'hero' right now is 'Doc.'

"I have done very well listening to their advice and I not only will make it through my lifetime but I will be able to leave an estate to my children. I don't know how to adequately say 'thanks,' but they have been a part of my life. I will turn 80 years old this year and I have been able to travel (in 48 states and throughout Canada) and live a good lifestyle. I have not only learned and benefited from being a member of Stansberry Research but I am glad I got to meet them personally. Porter was not married when I first met him and I am so happy for his family. I keep up with them as if they were mine. Also, I met Steve and his wife in Argentina and was very impressed. They are very fine people. Thanks again for a good life. Keep up the good work!" – Paid-up subscriber B

 "DailyWealth Trader [is] excellent. Already one of my favorites" – Paid-up subscriber Brian

 "Hi... I watched the promotional video for Daily Wealth Trader today; for the first time, I actually wasn't annoyed when I clicked on a link and it took me to a video. Why? Because Amber is a beautiful and articulate woman who was a pleasure to watch and to listen to. I normally hate the promotional videos, but I could have watched her for at least another hour. I know, it's not politically correct to comment on a woman's appearance, but it wasn't just her appearance, it was the way she presented, her intelligence, her presence – the whole package. And she has a really nice voice on top of everything else!

"Anyway, I hope Amber is not insulted by my comments, they are meant in the most complimentary way. In the future, if you decide to feature Amber in another video, you should alert your readers. I'm sure I am not the only one who will watch from beginning to end.

By the way, I am going to sign up for the service, too!" – Paid-up subscriber Bob

Goldsmith comment: Thanks for the note, Bob. To see the "beautiful and articulate" Amber Lee Mason in action – and learn more about DailyWealth Trader – click here...

Regards,

Dan Ferris and Sean Goldsmith

Medford, Oregon and Augusta, Georgia

June 7, 2012