Wed, Jul 23, 2014|Sean Goldsmith

The madness returns to Miami...

The madness returns to Miami... We wrote it, did you buy it?... Activist hedge fund targets S&A Resource Report company... Why energy firms should focus on U.S. assets... Apple jumps on earnings... How dominant is the iPhone?... Microsoft's earnings... Your last chance for discounted access...

We wrote it, did you buy it?

"I believe these [trophy] properties on Miami Beach will become the most expensive real estate in the U.S. – even more expensive than Manhattan." – Porter Stansberry, March 22, 2013 S&A Digest Premium

We've been imploring you to invest in real estate for years...

True Wealth editor Steve Sjuggerud urged subscribers to take advantage of record affordability (thanks to low prices and historically low mortgage rates) to buy a home. Anyone who took his advice is sitting on large capital gains... and potentially collecting a healthy rental income.

Porter was particularly bullish on Miami real estate. Miami is a destination for the world's rich and famous. There's an international airport, world-class entertainment, worldly culture, and it's a second home for global financiers (no state income tax makes Florida an attractive residence).

Plus, Miami Beach is tiny.

From the March 21, 2013 S&A Digest Premium...

South Beach, which extends south of Miami's 41st Street, is only around 40 blocks long by six blocks wide. It's smaller than Manhattan – maybe 1/10th the size. When you have lots of wealthy folks chasing scarce assets, it tends to produce spectacular price increases (especially when money is cheap and businesses are doing well). I think we're entering this kind of cycle in Miami Beach...

Porter put his money where his mouth was and personally bought a waterfront home in Miami Beach in 2010 for $400 a square foot. The value has more than doubled since then... And he believes it will be worth $4,000 a square foot within 10 years.

At the time, Porter also noted the construction of new, ultra-luxury buildings in Miami...

Ian Schrager – a famous developer behind Mondrian Hotel Group and the Gramercy Park Hotel in Manhattan – is constructing a building on Miami Beach called Edition. Prices start at $3,500 per square foot. It's the most expensive new construction in Miami Beach history.

Another building on North Beach, called the Mansions at Acqualina, starts around $5 million per unit.

Yesterday, the Wall Street Journal reported Ugo Colombo, a real estate developer, sold a 1.25 acre plot of undeveloped, waterfront land in downtown Miami (across the bridge from Miami Beach) for $125 million – likely the highest ever paid for undeveloped land in Miami per developable square foot. The plot is called Epic II, because it's located next to hotel and luxury condo building Epic Miami.

Colombo and partners purchased the lot at the peak of the real estate boom in 2006 for $25 million. In other words, Miami land prices have gone parabolic... with people paying nearly six times the previous highs.

"We're basically running out of waterfront properties for high-density development in Miami," Robert Given, the broker who co-represented Colombo and his partners in the deal, told the Journal.

Foreign buyers are taking everything off the market... The Journal says a soon-to-be-released study by consulting firm Integra Realty Resources for the Miami Downtown Development Authority shows 90% of buyers of new residential units are from abroad. They've pushed prices for condos built in the previous boom up 75% in just the past two years.

Epic II isn't the only mega-deal in Miami...

Last July, a Hong-Kong based developer paid $64 million for 1.55 acres in Brickell (Miami's major financial district). And Miami developer Related Group paid $104 million for four acres in Brickell in November.

"The Miami market has turned around 180 degrees in record time," Colombo told the Journal. "There is a humongous shortage of land. On the waterfront, there's none left. Every hole you see on the map now is being filled."

The prices being paid for new land are so high, building rental developments isn't economical... And rental units are in strong demand. Instead, wealthy foreigners are paying huge amounts of cash for luxury condos they may or may not use. Signs of the top abound...

Activist investor hedge fund Jana Partners recently targeted S&A Resource Report recommendation and international oil and gas explorer Apache (APA). Apache holds valuable acreage in U.S. shale plays. S&A Resource Report editor Matt Badiali recommended the stock based on its huge acreage position in Texas' Permian Basin.

As Matt wrote in the March 2014 issue...

The company has operated in the Permian Basin for more than 25 years and operates the most drill rigs of any company in the area. Its activity in the Permian fueled much of the company's performance last year. Apache owns 1.7 million net acres, with exposure to every major play in the region.

In 2010, Apache purchased BP's oil and gas operations for $2.5 billion. In the wake of the Deepwater Horizon disaster, Apache acquired these and other BP assets in Egypt and Canada. The transaction shows Apache's strong cash position and its ability to act quickly when the opportunity arises.

Apache had 2.6 billion barrels of proven reserves at the end of 2013. About 34% of these, or 910 million, are in the Permian. And the company achieved a reserve-replacement ratio of 323% in the Permian last year due to its successful drilling program. Given its strong presence in the region, we believe Apache will benefit from the land revaluation in the Permian.

However, as Jana Partners pointed out, many of Apache's foreign assets, like the Wheatstone liquefied natural gas project in Australia, cost the company too much money... money that should be invested in more profitable areas like the U.S. shale plays.

Jana believes that Apache could dramatically increase its earnings (and its value) by selling off many of its foreign holdings. Streamlining the company would dramatically improve shareholder value.

Shares of the oil company jumped 4.5% higher on the news. S&A Resource Report subscribers are up 31% since March.

Jana is taking a page from the Stansberry's Investment Advisory playbook...

In the July issue, Porter urged Devon Energy, a giant domestic energy producer, to stop investing so heavily in its foreign oil assets (Canada in particular)... It could produce far better results focusing on its domestic assets.

From the July issue of Stansberry's Investment Advisory...

Few publicly owned companies have management teams that behave this rationally. Even fewer have an asset portfolio as rich as Devon's. We doubt many shareholders realize that you generated an amount of cash ($21 billion) in less than five years that was equal to Devon's entire market capitalization 12 months ago. That is a testament to how thoroughly you have turned Devon around and adjusted both its strategy and its portfolio to the new reality of the global market for energy.

Given your proven willingness to make big changes, we hope you will consider doing even more to increase Devon's focus on the opportunity in American shale fields.

Devon continues to invest heavily – nearly $2 billion annually – in its Canadian heavy-oil projects. Known as Jackfish No. 1, Jackfish No. 2, Jackfish No. 3, and Pike, these operations produce bitumen – a heavy form of crude. By the projects' completion (scheduled for 2020), Devon will have spent 12 years and more than $12 billion on these projects, not including the cost to acquire these properties. Yet at their peak, these projects will only produce approximately 150,000 barrels, net to Devon, of bitumen per day.

We think these investments will produce poor returns compared with other investments Devon is making right now in the Eagle Ford and the Permian Basin, which is also in Texas.

Porter originally recommended Devon in August 2012... Subscribers are up 35%.

Shares of consumer-products giant Apple were up nearly 3% after announcing earnings yesterday.

The company grew revenue 6% to $37.4 billion for the quarter, below expectations for $38 billion. But Apple beat earnings expectations with $7.8 billion ($1.28 per share), up from $6.9 billion a year ago.

For the quarter, Apple sold 35.2 million iPhones (up 12.7% year-over-year). iPhone sales in Brazil, Russia, India, and China were up 55% in the quarter. Apple sold 4.4 million Mac laptops and 13.3 million iPads (down 9%). Gross margin was 39.4% versus expectations of 38%.

Other highlights from the earnings announcement...

CEO Tim Cook said iTunes was the fastest-growing sector of Apple's business in the first nine months of the fiscal year. It generated $4.5 billion in revenue for the quarter, up 12% from a year ago.

Cook also believes component prices should continue to decline, helping Apple's margins.

Retail sales in China grew 26% to $6.2 billion, besting Apple's internal projections. And while iPad sales were weak in developed markets, unit sales jumped 51% in China and 45% in India.

Apple's recent deal with IBM to sell its products to more businesses should help domestic iPad sales improve.

The company bought back $5 billion of stock in the quarter (bringing total buybacks to $50.9 billion over the past seven quarters). It has six quarters left to spend its allotted $90 billion for buybacks. Apple also paid $2.9 billion in dividends. Still, the company grew its legendary cash pile by $14 billion, to $164.5 billion.

We found a great infographic from web magazine Slate, which we've recreated here, showing how the revenue from Apple's individual products compares with the revenue of other major firms. It's clear why Apple is such a dominant force...

Extreme Value editor Dan Ferris noted the power of Apple's products, particularly the iPhone, in July 2013 – back when Apple was trading around $58 per share (split-adjusted). Dan explained the two ways Apple dominates the smartphone market...

First, Apple simply sells more smartphones in the U.S. (the largest and most important smartphone market) than any other company. The second and – for investors – most important way Apple dominates the smartphone market is that it simply earns more profit than any other handset maker... even though Samsung makes a lot more phones.

Toronto-based investment bank Canaccord Genuity estimates Apple and Samsung earn 100% of all global smartphone handset profits. (Nokia, Blackberry, LG, and HTC all break even or make small profits offset by Motorola's steep losses.) Apple earns 57% of all smartphone handset profits. Samsung earns 43%.

So Apple sells 39%-50% of the smartphones but makes 57% of the profit. Samsung sells more smartphones. In the first quarter of 2013, Samsung sold 64.7 million smartphones worldwide, while Apple sold 37.4 million. But Samsung's mobile-device division made just $6 billion of operating income, a 22% margin. Apple's mobile-device business made $8 billion of operating income, a 35% margin. Apple is worth more to its customers.

The specific numbers are less important than the overall point that the iPhone is a highly profitable business with a large share of the U.S. and global smartphone markets. The market is telling us the iPhone is worth a lot more than other smartphones.

Extreme Value subscribers are up 54% on Apple in just over a year.

Meanwhile, another World Dominator announced solid earnings yesterday...

Software giant Microsoft increased revenue for the quarter to $23.4 billion, up from $19.9 billion a year ago. Net income was down from $5 billion to $4.6 billion. Microsoft said its purchase of phone maker Nokia lowered operating income by $692 million.

Microsoft CEO Satya Nadella surprised folks when he said the company's Bing search engine would become profitable in 2016... It has lost billions of dollars trying to compete with Google in the search space.

And to show once again how strong Apple's device sales are, Microsoft sold 5.8 million Nokia Lumia smartphones in the quarter (compared with 35.2 million iPhones).

Nadella also said he's going to focus on Microsoft's core software business... And he's going to cut costs on everything else – including its MSN websites, retail stores, and hardware production, which Nadella now considers supporting efforts.

Extreme Value subscribers are up 96% on the recommendation since 2006.

On the subject of technology... If you have considered coming to our Los Angeles conference on August 23 (where we've invited one of the brightest minds in technology to speak), you need to act now...

We're still keeping this gentleman's name a secret, but he has been dubbed one of the 40 most influential minds in technology... and one of the "top 100 global thinkers."

He's the founder of two cutting-edge technology companies... In addition to sharing his thoughts on the future of tech, he's going to treat us to a live demo of one of his products from the stage.

And we just secured a new speaker for LA... Silicon Valley entrepreneur and venture capitalist Kamal Ravikant. He has founded several companies, including helping to start the company that became WebMD... And he has also invested in and mentored many successful startups.

He'll share his view of what's happening in Silicon Valley today... And some of the opportunities he sees.

Of course, Porter and Steve Sjuggerud will also present in Los Angeles. As will international speculator Doug Casey and S&A Global Contrarian editor Kim Iskyan.

We've lined up a world-class group of speakers... And today is your last chance to get discounted admittance to our show in LA. We hope to see you next month. Click here to learn more.

New 52-week highs (as of 7/22/14): Alcoa (AA), Automatic Data Processing (ADP), Apache (APA), SPDR S&P BRIC 40 Fund (BIK), Bank of Montreal (BMO), Discover Financial Services (DFS), Dorchester Minerals (DMLP), DCP Midstream Partners (DPM), ProShares Ultra MSCI Emerging Markets Fund (EET), EMC (EMC), Intel (INTC), Nuveen Quality Preferred Income Fund (JPS), Eli Lilly (LLY), Panhandle Oil and Gas (PHX), Qualcomm (QCOM), PowerShares QQQ Fund (QQQ), ProShares Ultra Technology Fund (ROM), Steel Dynamics (STLD), ProShares Ultra 20+ Year Treasury Fund (UBT), Union Pacific (UNP), and Vanguard Natural Resources (VNR).

Not much going on in today's mailbag. Surely all of our readers can't be sipping margaritas on the beach. Let us know what's bothering you lately at feedback@stansberryresearch.com.

"Just a note of THANKS, for continuing to invest in the TOP TALENT and continuing to deliver great and well researched investment options! Have been a part of Stansberry for many years, and I have lots of funds invested with your suggestions. Thanks..." – Paid-up subscriber Gregory Wood

"As you can see, I am long time Alliance member. I have many friends who have become customers of yours. I have several friends who are life members. All say the letters are too long. Get to the point. Such as my old time friend and the best trader in this sector says – they are too redundant. I have 30 positions all are from your letters. Keep up the good work." – Paid-up subscriber David Cobb

Regards,

Sean Goldsmith

July 23, 2014

Dan Ferris: What makes this resource stock so attractive today...

Yesterday, Extreme Value editor Dan Ferris revealed the name of one of his favorite resource investments.

In today's Digest Premium, he explains what makes this company so attractive...

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

Dan Ferris: What makes this resource stock so attractive today...

Editor's note: Yesterday, Extreme Value editor Dan Ferris revealed the name of one of his favorite resource investments. In today's Digest Premium, he explains what makes this company so attractive...

Normally to move a drill rig, it takes days and a bunch of people. You have to tear it down, take it apart, put it on trucks, move it to where you want it, and then put it back together.

Well, things have changed. Now you have pads and walking rigs. You can basically drill up to six different holes in a large space. And instead of taking days to move this stuff, the walking rigs can move at 60 feet an hour. They look like something out of Star Wars.

If you can imagine, the feet lift up, the rails slide along, and then they set down. And then the feet move to the next position. Then they lift up. The rig slides along, and so forth. So the rig just moves along under its own power. And, I (Dan) have heard estimates that it'll save around 10% on operating costs on a four-well pad.

Sprott Resource Corp (TSX: SCP, OTC: SCPZF) will take Independence Contract Drilling (ICD) public. Natural resources have been crushed over the past couple years, but the oil and gas sector is on fire. So it's a phenomenal moment to take this company public. And it proves to me that Sprott understands the script and is nailing it.

I want to see low or zero debt. Sprott is at zero debt right now. I want to see plenty of cash on the balance sheet. And I want to see good contrarian management. Some oil and gas stocks have doubled and tripled over the past year. I want to see management selling into that strength, and that is exactly what Sprott is doing for the second time. I can tell management truly gets it.

The old CEO is out. Former CFO Steve Yuzpe is the new CEO. I met him a few years ago, and I think Steve has proven beyond a doubt that he is a great contrarian.

This is the time to buy Sprott. It's trading at around a 20% discount to net asset value (NAV). And its NAV is about 80%-85% of highly liquid stuff: cash, receivables, stakes in public companies. So you're highly liquid at the bottom of the market with some of the best contrarians in the world. It's just beautiful.

My final thought... I remember this old oil and gas guy at a conference a long time ago in 1998 or 1999, when oil was down close to $10 or $11 a barrel. He put his arm around me at this conference and said, "If you can't buy oil now, you can't buy it." Meaning that if you can't buy it when it's dirt-cheap and bound to go up sooner or later, just don't bother. I feel the same way now about Sprott and some other really cheap, mostly commodity-oriented stocks. This is the time.

– Dan Ferris

Editor's note: Dan believes Sprott could make you several times your money over the next few years. But he recently told Extreme Value subscribers about "one of the best opportunities in the natural resource sector I've seen in my entire career."

This small-cap company could soon increase its cash flow 10 times over. Dan thinks the stock could easily double or triple... And he's positive the company will start to pay a fat dividend soon. For more details on this opportunity – and to learn more about a subscription to Extreme Value – click here.

Dan Ferris: What makes this resource stock so attractive today...

Yesterday, Extreme Value editor Dan Ferris revealed the name of one of his favorite resource investments.

In today's Digest Premium, he explains what makes this company so attractive...

To continue reading, scroll down or click here.