The S&A Digest

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 07/02/2013

Pzena wants more for Lear... Toyota's record profits... Ford's new "Taurus"... The most dangerous city in Europe... Is Eifrig "on the take"?... Not that bearish... A lower price on True Wealth?...

We wrote it. Did you buy it?

"At its essence, St. Joe is a big pile of raw Florida land... About 338,000 acres of St. Joe's land is located within 10 miles of the Gulf of Mexico. St. Joe owns more than five miles of beachfront on the Gulf of Mexico, bought for peanuts last century and untouched for decades. It owns 250 miles of frontage on bays, rivers, lakes, and marshes... This is what the omniscient, efficient stock market says has lost half its value over the past year. Unless somebody spilled some plutonium juice on it, I don't think it's lost any of its value."

– Dan Ferris, July 2006 issue of Real Estate Shareholder

Today, St. Joe (JOE) – now part of the Extreme Value portfolio – was up 8% in early morning trading. It is up 37% since Dan's recommendation. Dan "pounded the table" on St. Joe and the Third Avenue Real Estate Value Fund (TAREX) - which is up 19% since then - at the exact bottom in real estate-related stocks. Nice job, Ferris.

More on Lear Corp... Yesterday, I told you Icahn's $36-per-share offer wouldn't be enough to buy out Lear. Last night, major shareholder Pzena Investment, which holds nearly 15% of the shares, called for Lear's directors to reject Icahn's bid, stating that Lear has a long-term value of closer to $60 a share. Shares of Lear were up another 1% to $39 in early morning trading. If Lear goes private, I'm certain it won't be for less than $40 per share. And, considering Pzena's valuation, it could go for as much as $45. Look for another bidder to emerge soon.

Toyota recorded record profits of $3.6 billion, up 7.3%, for the fourth quarter of 2006. The company also reported an increase in sales to $51.2 billion, a 15.2% increase. Toyota's global vehicle production for 2006 totaled 9.018 million vehicles, while GM's was 9.18 million, approximately 162,000 more vehicles. Toyota will almost certainly take the lead in sales this year with its new $28,000 Tundra truck, loaded with features that cost thousands more on similar GM products.

The American response to Toyota's growing dominance? In an effort to boost revenues, Ford will rename its slow-selling "500" sedan "Taurus." Ford introduced the original Taurus – its best-selling sedan ever – in 1985 and retired it only last year. If they'd only called the Edsel the Taurus...

A Gallup Europe poll has shown that London is the most dangerous capital in the European Union. The poll showed that more than 30% of respondents had experienced some sort of burglary, pickpocket, or assault.

New highs: Gabelli Dividend & Income Trust (GDV), Van Kampen Senior (VVR), Akamai (AKAM), Raytheon (RTN), Southern Copper (PCU), Xcel Energy (XEL).

In the mailbag today, readers try to negotiate lower subscription prices from me and take the good Dr. Eifrig to task for his criticism of generic drugs. (Unbeknownst to Dr. Eifrig, prescription drugs are the "third rail" of newsletter publishing.) Send your prescription drug-free bile here: feedback@stansberryresearch.com.

"Is Dr. David Eifrig Jr. being paid by the drug companies? Or is he just naturally stupid... It is amazing that doctors who have so much education still do not get it... The pharmaceutical companies don't want us to die; they just want us to be sick as long as possible." – Paid-up subscriber Helen Elias

Although I noted an extensive disclaimer from Mr. Stansberry, I found nothing similar to attest [to] Dr. Eifrig's independence from accepting remuneration from pharmaceutical companies for possible services rendered... perhaps raising the question of which master he may have ultimately decided to serve in his professional career." – Paid-up subscriber Gary Gillespie, M.D.

Porter Comment: We don't have a position on the moral integrity of large-cap pharmaceutical companies. We can't know if their motivations are corrupt. Even if we did, we wouldn't voice this opinion to our audience... which seems to equate drug companies with Genghis Khan or Satan. But we can speak intelligently about Dr. David Eifrig...

We publish Dr. Eifrig expressly because he has a long background in finance and total financial independence. In fact, during the 1980s, he was one of the most successful derivatives traders on Wall Street, working for Goldman Sachs, Citibank, and Yamaichi. Very few people, having made their fortune on Wall Street, would start taking organic chemistry at Columbia at night in preparation for a second career in medicine. But that's what Dr. Eifrig did. And then he walked away from one of the highest-paying jobs in the world to go to med school. Unlike most doctors (who are in debt most of their lives), Dr. Eifrig doesn't practice medicine because he has to make a living. He got into medicine because he could afford to practice medicine and wanted to make a real difference in people's lives.

So, you may disagree with him from time to time. But I always read what he has to say. Dr. Eifrig is an extraordinary man: He's brilliant in multiple fields, humble, self-made, and totally independent.

"Apropos of the S&A Health Report this weekend: My wife was on a brand name high blood pressure med that the insurance company decided to decline in favor of a lower cost generic which she was told was exactly the same. It is believed to be the cause of precipitating the onset of an autoimmune disease 'Pemphigus Vulgaris.' It almost killed her. Apparently, there were other similar occurrences." – Paid-up subscriber RJ Lebenson

"While I agree with the general (and oft-repeated) sentiment posited by S&A writers that the market seems to be 'getting a bit toppy', I am also reminded of the well-known dictum from J.M. Keynes: 'The market can remain irrational longer than you can remain solvent.' Maybe I'll tighten my stops, but I'm hanging on for now. In my scant 12 years in the market, I've learned [that] doing nothing is often the hardest thing to do." – Paid-up subscriber David Beamer

Porter Comment: Dozens of subscribers have written similar e-mails. And yet, none of our analysts have said anything about selling long-held positions or bailing out of the market. Instead, we've written that it's harder to find good, cheap stocks than it was last year. We've written that if you're going to sell stocks this year (to raise cash for expenses), we'd recommend that you do it sooner rather than later. We've written that if you're going to invest a large amount of assets this year, you'll have to be very selective to get good results. And we've also noted that it has been a long, long time since the last market correction – a fall of 10% or more – and we're long past due for a fall of this magnitude. (A 10% correction is meaningless to a long-term investor... but it's better not to buy the day before one starts, if you can help it.) It's a mystery how writing that it's smart to be cautious now ends up meaning we think you sell everything and hide in the hills of Arkansas with Gary North...

"I appreciate the fact that in the latest PSIA you do not have a buy recommendation (only a watch for a lower price). To me, it is important that an advisor not feel pressured to have a buy or sell recommendation in each issue of his advisory. If there are no low-risk trades, then just say so." – Paid-up subscriber Patrick Hamilton

"How about a 2-fer? I am a devoted subscriber to True Wealth, but would very much like to additionally try one of your other fine investment letters. How about a reduced rate or even a 2-fer for a second product?" – Paid-up subscriber Joe Kaplan

Porter Comment: We sell investment research... that routinely generates exceptional profits for our readers... for less than what most people pay for a nice dinner for two. And you want a discount?

"Dear Sir, Your constant drumbeat of war on the American car makers, especially Ford, will probably be very successful in driving them out of business and then every garage in the country can hold a Toyota or two. Last time I looked, Ford had two new highly rated vehicles. They are working hard. Why don't you just leave them alone and concentrate on your investments or move your war to Iraq and help solve that enormous problem." – WH

Porter Comment: I've only written in detail about GM, which is being driven bankrupt because of a multidecade corporate policy of selling cars at a capital loss in order to sustain market share. Much like a Chinese state-owned enterprise, GM has routinely operated at a capital deficit (not enough money coming in to fund capital expenses and the dividend payment). The logical result of this policy was a growing debt burden. When credit-rating agencies finally downgraded GM's debt in 2005, the inevitable spiral into bankruptcy began. Currently GM is spending $16 billion a year to service its debt obligations. I don't need to tell you (I hope) that it's impossible for GM to produce this much cash flow from operations. (Toyota's record profits were only $3.6 billion.) GM's interest expenses will continue to grow, both because total debt is increasing and because when older debts mature, they must be refinanced at a much, much higher interest rate.

I don't think my writing is the cause of any of GM's problems.

Good investing,

Porter

February 6, 2007

Stansberry & Associates Top 10 Open Recommendations

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