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

Getting bearish… Spammer busted… Better than Starbucks?… Insiders selling in record amounts… Where to find "rule of three" recommendations…

This from our Inside Strategist editor Graham Summers… Because of stock-option compensation, corporate insiders almost always sell more shares than they buy. The average ratio, in fact, is 20 to 1, meaning insiders normally sell 20 shares of stock for each one they buy. But, at market tops, this ratio can get very extreme. (I remember in 1999 and early 2000, when insiders were selling 100 shares for every one they bought.) In November of last year, the ratio of insider selling was 132 to 1, more than six times its average. And since then, the selling has actually increased. Preliminary numbers from January suggest insiders only bought $13 million worth of stock. That would be a 16-year low for monthly insider buys.

The Semiconductor Industry Association announced that sales of computer chips reached a record in 2006 at $247.7 billion, beating the previous year's record of $227.5 billion by 8.9%.

At last… Authorities have fined a Dutch man responsible for sending 9 billion "unsolicited electronic messages to consumers to promote erection enhancement pills, pornographic web sites, sex products and such." At $97,000, it was the largest fine ever levied by the Dutch telecom watchdog known as OPTA.

Extreme Value pick Home Depot (HD) will see two more top executives step down, following the resignation of CEO Bob Nardelli. Frank Fernandez, the company's general counsel, and Dennis Donovan, head of personnel, will leave on February 14.

Not only is 12% Letter pick McDonald's (MCD) Premium Roast coffee the cheapest brew around… Taste testers in the March issue of Consumer Reports determined that McDonald's Premium Roast also beats out Starbucks for best flavor. Reviewers said McDonald's coffee has "no flaws" and labeled it "decent and moderately strong." Starbucks java, on the other hand, is "strong, but burnt and bitter enough to make your eyes water instead of open."

Venezuelan President Hugo Chavez is speeding up his nationalization efforts. He has set a May 1 deadline for major oil producers to surrender their projects in the country. If they fail to turn over operations, the state will seize the fields.

New highs: AutoZone (AZO), American Capital (ACAS), Posco (PKX), JPMorgan (JPM), Silver Standard (SSRI), Allegheny (ATI), Van Kampen Senior (VVR), Van Kampen Muni (VKQ), Oakley (OO), Southern Copper (PCU).

As always, we save the best for last… here's the mailbag. Keep us stocked with ammo – send your comments to feedback@stansberryresearch.com.

"All I have been hearing from you gals lately is market top! Well, by being a bear for months, all I have been doing is eating bear crap. So last month I became a bull again and had my best month ever. Also we just had confirmation of the Dow Theory. So take that for your scathing remark." – Paid-up subscriber David Williford

Porter Comment: Oh boy… As I wrote to my subscribers today, I'm beginning to get nervous about the market. There's too much bullish sentiment, too little insider buying, and too much complacency about risk. I spent the last week searching for good stocks, at good prices. There was exceptionally little to choose from – almost nothing. This lack of readily available value is worrisome.

Of course, whether the market goes up or down doesn't really matter if you're a long-term holder of high-quality businesses bought at good prices. However, if you've got a lot of money to put to work right now, or if you might liquidate your portfolio this year, it could matter to you. In my letter, I'm recommending a series of new short positions in individual stocks, mostly as insurance against a sudden market decline.

"Your recent comments concerning dividend 'grabs' prompted me to share this with you and, hopefully, other readers of S&A Digest like me. I began buying Phelps Dodge Corporation's (PD) shares in January 2005. As I took profits in other issues, I added PD shares to my holdings. I liked it for its value and the prospects of increasing copper prices. Then, in October 2006, PD announced that it would pay a special dividend of $5.00 per share in December 2005. It did, and its share price just kept going up. Then, in February 2006, it followed up with a $4.00 per share special dividend. In April 2006, it split 2 for 1. In May 2006, it paid a special dividend of $2.00 per share. Now, as PD is being acquired by Freeport-McMoRan (FCX), we are waiting to be paid $88.00 cash plus a 0.67 share in FCX for each share of PD that we own. In my opinion, this has been a true dream dividend grab with the added bonus of a super buyout price. I realize that this is the exception to the rule that payment of a special dividend drops the per-share price by a proportionate amount. In the case of PD, the share price just kept appreciating unabated by the payments of special dividends." – Paid-up subscriber Lee Lucero

"Isn't that story about the beer can a version of an urban myth about the guy who hears a persistent rattle in the door of his new Cadillac? After extensive body work, the body man discovers a ball bearing and a note from an auto worker to the rich bastard?" – Paid-up subscriber John Rowland

"Okay, Jeff, pat on the back. I bought the ADM June 30 calls on 29 January, as per your instructions (and sold the puts, as my own little twist on the play). I closed out today (as per your instructions) for a net 150%. Well done. There's cold beer in the icebox tonight. I sold half my QQQQ puts for a double and am still on the board with the other half. So far have recovered 25% of the Alliance subscription I bought in December. More, please." – Alliance member Ian Dubin

"Just sold my Akamai Jan 08 25.00 leaps at $32.00 for a very nice 335% profit, as time decay will start to eat into profits at six months out. Went a bit early 'cause I think Jeff Clark is right. This market can't continue the Mt. Everest climb. This trade paid for my Alliance membership plus. Thank you very much. Please put an EPIRB on Porter when he goes fishing so we can find him if he decides to wrestle a tarpon." – Alliance member R.W.

"I am delighted to hear you are a graduate of the University of Florida. I attended from 1948 to 1952 on a Lewis scholarship, which paid $400 per year. That amount covered tuition, books, room in a dorm, plus sheets, pillow, and blanket rental for a year. I note with interest that a financial magazine recently listed the University of Florida as the second-best educational bargain (cost plus quality of education) in the country. University of North Carolina was first… Go Gators!" – Paid-up subscriber Jim Fisher

"Mr. Stansberry, I am a subscriber to your newsletter but not a stock investor, yet (only bonds up to now). I have read your 3 rules you have mentioned… They make sense. Question: Which of the newsletters you are publishing comes closest to following those 3 rules? I would like to use this newsletter as a starting base for my own research and build up a long-term stock investment portfolio." – Paid-up subscriber Emanuel Krauskopf

Porter Comment: In the newsletter I write (Porter Stansberry's Investment Advisory), you'll find stocks that meet these criteria in my "no-risk" portfolio and in my "forever" portfolio. You'll also find stocks meeting these criteria in Dan Ferris's Extreme Value.

Regards,

Porter Stansberry

Cockeysville, Maryland

February 2, 2007

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