The Biggest Dividends You'll Receive Next Year

Cockeysville, Maryland

* * * "Porter, it’s amazing… these things are way too cheap. Take Southern Peru Copper. In the past year, the stock has soared… and paid out an 8% dividend. Matt’s latest base-metal mining pick has an even bigger payout. You’ll make double digits over the next year in dividends alone." Our managing editor, Brian Hunt, speculates on the opportunity in most of the base-metal producers… more below.

* * * "Between the losses in chicken – because of high feed prices – and having to pay top dollar for pigs in the pork enterprise, Tyson (TSN) is under severe cash flow trouble…" says a contact close to the company. He also tells us that Tyson will soon spin off its meat business to raise cash.

The price of boneless, skinless chicken breasts fell 25% in 2005. And it’s down another 15% this year. Additionally, corn, which is a major input cost, is up substantially this year. As a result, Tyson hasn’t reported positive cash flow from operations so far in 2006 – instead, it’s lost about $60 million. And it has spent $300 million on capital improvements to maintain its facilities. With $800 million in cash, more than $1 billion in receivables, and more than $2 billion in inventory, Tyson’s not going bankrupt. However, its debt was downgraded last year and will be downgraded again this year if the losses continue. With $4 billion in debt, another downgrade would be costly. Selling off the meat business would allow the company to pare debts and probably prevent a downgrade. Meanwhile, the stock is cheap. It sells at book value and the market cap is only one-fifth of annual sales. Beef makes up 45% of the company’s sales… but it’s the only division operating at a loss.

The rumors make sense to me. I bet a deal happens…

* * * We wrote it. Did you buy it?

"Right now, because of the options scandal overhang and some other regulatory problems, the stock is only worth a little more than one times sales and only six times cash earnings. In other words, even if nothing good happens from an operational standpoint, once the smoke clears from the options scandal and the other regulatory issues, you should double your money here…"

The stock in question, recommended last month in my newsletter (Porter Stansberry’s Investment Advisory), jumped 14% this morning when… nothing happened. In fact, earnings came in significantly below Wall Street’s expectations. But, as so often happens in the stock market, once all the bad news is out and the stock is extremely cheap, there’s only one way left for it to go: higher.

* * * Lots of action in other portfolios, too. Matt Badiali’s African gold company hit another new high, as did my first blue-chip recommendation of this year – Lexmark (LXK). Two more of my blue-chip picks, Microsoft (MSFT) and Disney (DIS), are also making new highs. Big Oil is breaking out (making it look like oil’s attempt to get back over $60 per barrel will happen). And Big Pharma is at new highs.

* * * Paid-up subscriber Brian Humphrey suspects the worst of us: "It almost seems as if you derive great pleasure from pissing off your readers… every time you get another letter from a disgruntled reader saying that they are un-subscribing due to another one of your (or your colleagues’) opinionated dissertations, you almost wear it as a badge of honor. I personally have no axe to grind. In fact, I find some of what you write to be somewhat comical… maybe you’ve discovered that being a pompous wiseass will put you on the fast track to success. Again, I have no personal bone to pick… keep the good recommendations coming."

* * * Meanwhile, paid-up subscriber Helen O’Keefe writes: "I love this new report – and your delightful sense of humor. Don’t let those one-point-of-view-only people slow you down."

* * * Alliance subscriber Bob Greene writes from the scene of the crime… "The Vaseline tax (greenhouse gas tax) passed in Boulder. This tax will provide for four more city employees to ‘educate’ the public on how to reduce their energy use. Just what we need here…"

* * * "Boy, that palatial mansion and the ocean-view lots in Rancho Santana should be going real cheap now. I haven’t seen those colorful surfing pictures and beautiful vistas in a while. Love your service and your advice, but couldn’t resist the dig," says "faithful" Alliance member Dave Quattrin, in response to Daniel Ortega’s recent election victory in Nicaragua.

Porter Comment: With friends like Dave Quattrin, who needs Sandinistas? Seriously, though, because I cynically assume all politicians are equally likely to be criminals, ol’ Danny Ortega doesn’t bother me much. I’m still planning to build a house on the beach in Nicaragua next year. It’s gorgeous. It’s cheap. And even if the Sandinistas tax me, could it be any worse than the taxes here in America? I doubt it.

* * * Finally, a word about Wal-Mart from someone who actually shops there: paid-up subscriber James S. "I agree with Dan’s pick of Wal-Mart. The numbers do not lie, and I myself have had to rely on shopping there when I was down on my luck. The money saved was used for other necessities, such as utilities and insurance. I have a few friends who work at Wal-Mart, and they have no complaints – in fact, they really like working there. The wages are better than fast food places and the people you work with are nicer also. I still enjoy shopping at Wal-Mart, except around paydays when the checkouts are crowded… Just keep making me money and I will continue my subscription."

Porter Comment: We’ll do our best, James.

* * * Do us a favor: Have a glass of wine before you sit down to type us an e-mail. Or maybe even a shot of liquor. Send your thoughts to: feedback@stansberryresearch.com.

* * * * * * * * * * * * * * * * *

Much to Wall Street’s surprise, Southern Peru Copper (PCU) hit a new high this week.

The world’s largest publicly traded copper producer in terms of reserves in the ground, Southern Peru Copper has been an investor’s dream come true during the past year… nearly doubling in share price and paying out an 8% dividend along the way.

PCU shareholders should send thank-you cards to Wall Street for the huge returns. The big brokerage houses simply don’t believe that the prices of base metals, such as copper, lead, zinc, tin, and nickel, will remain high for much longer. Led by forever-bears, including Morgan Stanley’s chief strategist, Stephen Roach, Wall Street has been predicting a drop in base metal prices for most of 2006.

This commodity pessimism leaves many base-metal mining companies incredibly cheap in relation to the cash they produce. I know S&A geologist Matt Badiali follows these stocks closely, so I asked for his take on what’s happening. His reply:

"Even if the price of base metals declines 25% from here, producers will still churn out tons of cash… and many will simply pay that money out in the form of huge dividends.

"In fact, my favorite recommendation in the world right now is one such company. It’s one of the largest zinc and lead producers in the world. When I recommended the stock a few months ago, it was so cheap, it was set to pay out an 18% dividend in the following year."

Before you invest in stocks that depend on highly cyclical commodity prices, you’ve got to make one decision…

You could listen to a guy like Stephen Roach, who recently told Forbes that "commodity prices could fall another third from here, putting an end to silly notions of a so-called supercycle of commodity increases. The culprits: slowing growth in China, a voracious buyer of commodities, and a U.S. housing recession that… will slash demand for building materials like copper and weigh down the global economy."

Or you could listen to Jim Rogers – the legendary investor who founded the Quantum fund with George Soros. Rogers told Forbes in the same article that the "supply of things like base metals, oil and rubber is crimped after years of underinvestment in mines and oilfields and farms… so prices are heading up. And they will go up, with some transitory hiccups, well into the next decade and perhaps even the one following…"

Stephen Roach has been bearish on stocks for the past three years. Rogers made millions of dollars by running real money.

My bet is on Rogers and cheap base-metal producers. Yours should be too.

Good investing,

Brian Hunt

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