Tesla reports weak earnings...

'The Most Bombed-Out Investment Opportunity in America Today'...

 "The Most Bombed-Out Investment Opportunity in America Today" was the headline of Steve Sjuggerud's March 2011 issue of True Wealth... He had just turned bullish on real estate.

Housing was hated... And it was the most affordable it had ever been, due to its price and historically low borrowing costs.

Steve recommended everyone take out a 30-year mortgage and buy a house.

 But our readers weren't the only folks who were wise to the opportunity. For the first time ever, large institutional money began buying tens of thousands of homes, revamping them and renting them out.

These corporations, like private-equity powerhouse Blackstone Group – a True Wealth recommendation, which is up 112% since Steve recommended it – became some of the largest landlords in America.

 In the October issue of Stansberry's Investment Advisory, Porter and his research team recommended another large homeowner... American Homes 4 Rent. The company was founded by the billionaire founder of Public Storage, B. Wayne Hughes. From that issue...

In 2005, the home ownership rate reached an all-time peak of 69.2%. It has since fallen to 65%. That might seem like a small decrease, but it actually represents 5 million households.     We are entering a new era of renters. Renting an apartment is common. Families, especially those with children, want to live in a home. They value their space. They feel that a home is more private.     Hughes had a similar idea. In 2012, he formed a private company to start acquiring houses. He used this company to partner with private investors who liked his idea. This is the same way he initially grew Public Storage.   By July, the partnership had acquired 19,285 homes in 44 markets. Hughes was ready to take his new company – American Homes 4 Rent (AMH) ­– public.

 This business model – institutional money as landlords – has taken a lot of heat recently. People wonder what the exit strategy will be when these giant firms try to sell... And if they understand exactly how capital- and time-intensive the business is.

Michael Stein, co-founder of real estate investment firm Pensam Capital, who we featured recently in Digest Premium, is one of the skeptics. He said...

 Tomorrow, we'll update you on the current state of the business and share a rebuttal from Porter's research team.

– Porter Stansberry with Sean Goldsmith

'The Most Bombed-Out Investment Opportunity in America Today'...

True Wealth editor Steve Sjuggerud started recommending housing more than two years ago... Then private-equity giants got into the game.

In today's Digest Premium, Porter discusses one of the major players in the space...

To continue reading, scroll down or click here.

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(Top 10 highest-returning open positions across all S&A portfolios)

As of 11/06/2013

Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.

'The Most Bombed-Out Investment Opportunity in America Today'...

True Wealth editor Steve Sjuggerud started recommending housing more than two years ago... Then private-equity giants got into the game.

In today's Digest Premium, Porter discusses one of the major players in the space...

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

Tesla reports weak earnings... And its cars catch on fire... Microsoft is up...

 Regular Digest readers know electric-car manufacturer Tesla is one of our favorite whipping boys.

The stock rose from $19 in June 2010 to as high as $193 this past October – a 10-bagger in just over three years.

We never officially recommended shorting Tesla... But we knew shares couldn't continue their upward march forever. For one, the company loses money every year.

Even the company's CEO, Elon Musk, recently said he thought the stock was overvalued.

 We couldn't agree more. As Porter has explained in the past, we short stocks for three reasons: if we believe they are "frauds," if we believe their products are obsolete, and if they have unsustainable debt loads. And as Porter said in the May 24 Digest Premium, "In Tesla, we sort of have the trifecta"...

Lastly, Porter addressed whether Tesla is a "fraud." When we say fraud, we don't necessarily mean it in the legal sense. We don't believe an actual crime is being committed. It's more general – that a company is being sold as something more than it is. Again, from the May 24 Digest Premium...

 In addition, Tesla is facing heat from car dealerships – an incredibly powerful lobby. The company is trying to sell its vehicles directly to consumers in company-owned stores, bypassing the traditional dealer/franchise models.

But the dealerships want their cut of the profits... And they're fighting back. Tesla's retail stores would violate state franchise laws.

 Oh, and Tesla's cars catch on fire. As we wrote in the October 3 Digest...

 This week, there is still more bad news to report on Tesla...

On Tuesday, the company announced disappointing earnings after market close. Shares fell nearly 15% on Wednesday. Tesla lost $0.32 per share, worse than the expected loss of $0.25 per share. Revenue was $431 million versus expectations of $554.33 million.

Optimists pointed to the fact that Tesla delivered 5,500 Model S vehicles, ahead of its own expectations of 5,000 deliveries. But Tesla is losing money by selling its cars and hoping to make it up on volume.

 The stock fell as much as 9% today after another Tesla Model S caught fire. The car caught fire in Smyrna, Tennessee after a man hit some road debris. This is the third Model S to catch fire in five weeks.

 Shares of software icon Microsoft rose 4%-plus yesterday... The company is busy working on improvements to its Windows 7 operating system. It's also getting ready to release a new Surface tablet and is continuing discussions to replace current CEO Steve Ballmer.

We've long been critical of Ballmer and his ability to waste Microsoft's money...

Under Ballmer, Microsoft has spent $21.7 billion on three large acquisitions since 2007... It paid $6 billion on market services firm aQuantive, $8.5 billion on Skype, and in September 2013, it spent $7.2 billion on Nokia's phone business.

According to Dan Ferris – who holds shares in both his 12% Letter and Extreme Value newsletters – the acquisitions have added a couple billion dollars of operating income, but no net income.

Yet despite Ballmer, Microsoft still manages to produce $30 billion of cash a year.

Shares also got a boost in September after the company announced it was going to return some of that to investors via a $20 billion share buyback and a 22% dividend raise.

 Dan recently raised his buy-up-to price for the technology giant. Here's what he wrote in the August issue of Extreme Value...

Dan's 12% Letter and Extreme Value readers are sitting on gains of 51% and 67%, respectively.

 Over the past two days, we've discussed Dr. David "Doc" Eifrig's "trading for income" strategy and his brand-new Income Intelligence advisory. So far, we've looked at dividend stocks, corporate bonds, municipal bonds, and real estate investment trusts (REITs).

Today, we're finishing the three-part series with two more popular income investments...

Master Limited Partnerships (MLPs)

The Asset: Master limited partnerships (MLPs) are similar to REITs. They have a favorable tax structure that gives investors nearly direct access to less liquid but income-generating assets.

In the case of MLPs, the IRS has a list of "qualifying assets" that are allowed. The most common items relate to energy and natural resources like oil pipelines, refinery services, and natural gas storage.

MLPs also pay little to no corporate taxes as a reward for passing income on to shareholders.

Typically, MLPs work like a toll road. Pipelines transport a commodity for a fixed fee without worrying about production rates or commodity prices. It's a simple way for an asset to generate cash.

The tax issues for MLPs can get a little thorny. We'll cover them whenever we recommend an MLP.

The Price: Current prices for MLP shares are available anywhere you can get stock quotes, like Yahoo Finance.

The Income: MLPs typically pay income in the form of quarterly distributions. Eyeing up economic activity and competition surrounding the particular assets will give you a good idea of where income levels could be headed. For instance, with the natural gas boom in the United States, the income derived from natural gas pipelines has risen.

When judging the safety of MLP income, cash flow trumps earnings. In particular, MLPs report a statistic called "distributable cash flow." This is the amount of cash flow that the partnership can pay to shareholders after paying to maintain the equipment.

Preferred Stock

The Asset: Preferreds are considered hybrid securities since they have some characteristics of bonds – for example, they deliver fixed-income payments to shareholders – and some characteristics of stocks.

Preferred shares are a form of debt that trade on public stock exchanges. They are highly liquid securities and can be easily bought and sold, just like common stock.

But preferreds also represent bond-like security. Preferred-share holders have claims against the assets of the companies (should bankruptcy happen), like a bond. Although their claim is a lower priority than those of traditional bondholders... it's a greater measure of security than common-stock shareholders have. (Their claims come at the end of the line.) However, most preferred shares lack voting rights, something common-stock shareholders do enjoy.

The Price: You can find prices for preferred shares on Yahoo Finance. You always want to compare the current price to the callable price. If a company can buy back its shares for $25 (the callable price), you wouldn't want to pay much more than $25 for them.

The Income: The quoted coupon yield can vary from the true yield, which is calculated as yield-to-maturity. For preferreds, "yield-to-worst" is a similar measure. When preferreds are callable, they typically have a provision that prevents them from being called until a specific date.

So while a preferred may pay a 6% dividend on shares it issued for $20, since the price can fluctuate, an investor can earn a different yield. In the case of a preferred share, yield-to-worst is the most useful way to calculate what you can truly earn. The yield to worst considers the current price, the dividend payments, and the possibility that the company will call the shares at the first chance it gets. Companies don't always call their preferreds right away. It typically depends on if they have the cash or what prevailing interest rates are. But this yield-to-worst provides a "worst-case scenario" estimate of what sort of yield we can expect.

 New 52-week highs (as of 11/6/13): Becton-Dickinson (BDX), CVS Caremark (CVS), Dominion Resources (D), Emerson Electric (EMR), 3M (MMM), Altria Group (MO), Microsoft (MSFT), ONEOK (OKE), Procter & Gamble (PG), Sturm, Ruger (RGR), ProShares Ultra Technology Fund (ROM), and Constellation Brands (STZ).

 In today's mailbag, the age-old question: "Do I follow my stop losses if...?" You'll find the answer below. Send your questions and comments to feedback@stansberryresearch.com.

 "The 25% trailing stop loss method is clear: sell when a stock drops 25% from its high or entry level. However, what is the recommendation if there is a general market meltdown and most, if not all, of your positions decrease 25%. Sell all positions or ride out the storm?" – Paid-up subscriber Nick Trippodo

Goldsmith comment: Always follow your stop losses.

"I am sitting on $700,000 in cash in our trading account waiting for Thursday night at 8 p.m. If it is as good as I think it will be... a 'large chuck of this cash' will be employed following another of 'Doc's famous strategies.' Can't wait." – Paid-up subscriber John H Bertrand

Goldsmith comment: We're looking forward to it, too, John. Remember, if you'd like to sign up and gain access to Doc's free webinar tonight, click here.

Regards,

Sean Goldsmith
Baltimore, Maryland
November 7, 2013

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