Editor's note: The entire Digest crew is traveling today, so the effort will be brief. Things will return to normal tomorrow.
Two corporate bellwethers announced better-than-expected earnings today. But in the case of the world's largest retailer, Extreme Value World Dominator Wal-Mart, the headlines tell conflicting stories. The Wall Street Journal reported, in an overall bearish article, "Wal-Mart Same-Store Sales Fall." Bloomberg, on the other hand, proclaimed "Wal-Mart Beats Profit Estimates on Overseas Growth." Despite the opposing headlines, the market and the numbers don't lie. Wal-Mart earned $3.32 billion for the quarter, up from $3.02 a year earlier. Revenue rose 5.9% to $99.1 billion (analysts forecast $98.45 billion). Wal-Mart shares jumped more than 3% to more than $54.
The largest home improvement retailer in the U.S., Home Depot, earned $725 million this quarter, up from $514 million a year ago. Revenue rose 4.3% to $16.9 billion. Sales in stores open at least a year, an important retail measure, increased 4.8%. The number of transactions increased by 13 million to 323 million. Home Depot also increased its forecast for full-year profits to $1.88 a share from $1.79.
As we wrote last month in the Digest, these rising corporate earnings are a mirage. People feel flush after a 70% market rally. In reality, these earnings are just the nearly $3 trillion the government printed working its way through the system. Eventually inflation will take hold and these "boom times" will come to a screeching halt. And if our bearish warnings over the past three years haven't scared you into buying gold and investing conservatively, perhaps this piece from Dow Theory Letters editor Richard Russell will do the trick:
Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know – who told him?" Tell them the stock market told him.
We're not the only ones gearing up for inflation. Hedge-fund virtuoso John Paulson's latest 13F came out today, and he's still buying banks and gold (both assets perform great during inflation). Paulson added to his Bank of America stake, which currently stands at $3 billion – his second-largest position. Paulson also added four new gold positions (his largest position is still SPDR Gold Trust at $3.4 billion). Of the $21 billion Paulson manages, 30% is in gold and gold stocks. When one of the world's most successful and respected hedge-fund managers owns such a huge chunk of gold, it's worth noting. To see Paulson's entire filing, click here.
We wrote it, did you short it?
Both companies – Western Digital and Seagate – make essentially the same products (data storing hard drives). They split the market almost 50/50. Seagate is slightly larger. But Seagate has $2 billion in debt. Western Digital only holds $400 million in debt. They are both valued by the stock market for more than $9 billion. Seagate will most likely never turn an annual profit again. Western Digital won't be profitable after the end of this year. The future value of both of these firms is zero. They're buggy-whip makers. – Porter Stansberry, February 2010, S&A Investment Advisory
The bottom fell out of Western Digital (WDC) and Seagate (STX) today. WDC fell more than 5%, and Seagate is down nearly 4%. The market is finally realizing the obsolescence of these companies. Porter's readers are up 14% and 17%, respectively in three months.
In his latest issue, Porter recommended a stock to make big, safe gains in the natural gas boom we see in the near future. To learn more, click here...
Porter isn't the only S&A analyst who's bullish on energy. Jeff Clark's latest Short Report is out today. He's calling an oversold bounce...
One of my favorite ways to trade an oversold bounce is to buy stocks that have already retested their lows and developed positive divergence on the 60-minute charts. Even if a broad market bounce doesn't develop, these stocks rarely fall much farther because of the positive setup. It's a low-risk way to trade on the potential upside.
He scoured several hundred charts looking for a setup that fits the above description. He found one stock that works. It's an oil company with huge margins. As oil prices rebound, this company will benefit the most. And its chart is perfect. In fact, Jeff says "you won't find a better technical picture anywhere in the market."
If this stock just follows its current pattern, Jeff expects readers to make 140%. If the stock starts "getting legs," readers could easily pocket 240%. If you're looking to make quick gains on the oil rebound, this is the best way to do it. To learn more about Jeff's S&A Short Report, click here...
News highs: Altria (MO), Akamai (AKAM), DirecTV (DTV), Molina Healthcare (MOH).
Back to the old screeds in today's mailbag. If only we understood this one... feedback@stansberryresearch.com.
"It is anybody elses fault. I am so tired of reading all this garbage. when are you all gunna own up to the fact that the shit came outta YOUR asshole. All this crap you write means nothing, until somebody owns up to it. it is all garbage,and all you self centered ass-wipes can stop pointing fingers. all those pointy fingers got poop on them. now is the time for anarchy. guns – gold – and goods. Now is the time for all good men to renig the dollar, and turn his back on the suppressor. Just as 'russia' was a world power, now is the time to refuse the 'usa,' and find the true value of the people. F*** your fiat – in gold we deal! I am seeing the end of times. I am seeing the end of make believe." – Anonymous
Regards,
Sean Goldsmith
Baltimore, Maryland
May 18, 2010