The S&A Digest

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

As of 07/01/2013

Valhi spins off TIE... Wal-Mart and charity... Dendreon: We'll make money no matter what the FDA decides... Icahn closes on LEA... Buffett bails out Lloyd's... How to set up a yen carry trade... True Income?...

PSIA pick Valhi (VHI) completed its spin-off of Titanium Metal (TIE) shares. Valhi shareholders received .4776 shares of TiMet for each share of Valhi held. Fractional shares were paid in cash. Valhi's shares rallied from $12 to $15 after being discounted for the spin-off. (That's why our newest product, S&A Dividend Grabber, will cover spin-offs as well as special dividends.)

More on the corporate devil... Extreme Value pick Wal-Mart (WMT) increased its charitable donations by 10% to $272.9 million last year, keeping its title as the country's largest corporate donor to charity.

Got a note from Jeff Clark this morning. "Dendreon Corp. (DNDN) is presenting its prostate cancer vaccine, Provenge, to an FDA advisory panel on Thursday. The panel will either give it a thumbs-up or a thumbs-down. Thumbs-down is bad for the stock... we would probably see DNDN drop below $2. Thumbs-up, on the other hand, is very good for DNDN, and the stock would likely double or more..."

As you probably know, Jeff Clark doesn't specialize in medical stocks. That's Rob Fannon's job. What Jeff Clark does specialize in is using options to build highly optimized trading opportunities. Jeff tells us that, given the enormous volatility around these kinds of make-or-break FDA decisions, you can use options-trading strategies to make money no matter what happens...

And Jeff has devised just such as strategy for DNDN. "The bottom line is that the worst we'll do on this trade is make $5 per contract. And the best we'll do is make $250 per contract..."

According to a study released yesterday by the National Academy of Sciences, global warming could greatly alter our current climate zones... by the year 2100. Making 90-year predictions is a great gig if you can get it. How much would you pay for our 90-year stock market forecast?

You may recall our earlier essays about GM. We speculated that GM would soon be forced into bankruptcy and that well-managed auto-parts companies would be the major beneficiaries. In particular, we identified Magna International (MGA) and Lear Corp. (LEA), via its 30% or so interest in Wilbur Ross' International Auto parts conglomerate. Since then, Magna has emerged as a bidder for Chrysler, and Lear has become the subject of a bidding war of its own, with two famous money managers – Carl Icahn and Richard Pzena – angling for LEA. Icahn struck first, offering $36 a share for Lear. The deal closed today, but is subject to a vote by shareholders. Richard Pzena owns nearly 10% of the shares. He says the stock is worth $60. Other professional money managers control another 30% of the stock. If they all gang up against Icahn...

In Warren Buffett's letter this year he described one of the most unique deals I've ever seen – a bail-out of Equitas, the reinsurer created by Lloyd's of London. (Imagine how rich you must be to bail out Lloyd's...). The deal closed today. Berkshire will take on all of Equitas' operations, staff, liabilities, and add an additional $5.7 billion in reinsurance.

Hooray! More new highs: Anglo American (AAUK), KLA Tencor (KLAC), Macquarie Global (MGU), Telstra (TLS), Xcel Energy (XEL).

And now for our daily dose of wailing and teeth gnashing... the mailbag... Contribute yours here: feedback@stansberryresearch.com.

"I think you should comment in the S&A Digest about the Oracle lawsuit filed vs. SAP this past week... Speaking as a former Oracle employee, SAP's allegations don't make sense. Oracle doesn't share confidential information with customers, whether by phone support or via their Metalink online support database" – Paid-up subscriber Tim Hoogasian

Porter comment: I haven't paid much attention to this lawsuit because enterprise-level technology companies file these kinds of suits all the time, mostly for marketing purposes. In this case, Oracle wants everyone considering SAP software to wonder if SAP is trustworthy and stable. (I'm sure it's both.) Additionally, as I'm sure you recall, my recommendation was to buy SAP under $40. It hasn't broken below $45 yet... so I'm not watching it very closely.

"It appears as if Dan Ferris has been practicing his Japanese. I got the explanation from the highest power in the house, my Japanese wife. A tanuki is an East Asian animal that really exists. It is similar to a raccoon. However, a drunken tanuki exists in fairy tales, and when they drink, they like to beat their stomach with their fist for fun in a party-like or musical fashion... I'm not sure if any tanukis have bought any of the recommended real estate in Japan yet." – Paid-up subscriber Bob Greene

"No insults, I think S&A provides overall very good analysis, and Jeff Clark is great. I do have a question, not being terribly familiar with the mechanics of the yen carry trade. Can an individual who is not named 'Gates' get access to the yen loans at something approaching the current less-than-1% Bank of Japan interest rate? If so, could one not use such a loan and invest the proceeds in either 12% Letter recs, or [S&A] Dividend Grabber picks, or even Dr. Steve's Icelandic bonds or Annaly, and have a high probability of success and fairly low-risk investment?" – Paid-up subscriber Frank Morris

Porter comment: Anyone with enough assets to open a Swiss bank account or a private-wealth management account at a money-center bank like Goldman Sachs (assuming he has enough collateral) can easily arrange to borrow yen and will pay the yen carry rate, which I believe is less than 2%.

However, I wouldn't recommend the trade. The Bank of Japan has been broadcasting to the market for months that it will raise interest rates. Additionally, as Steve Sjuggerud pointed out several weeks ago, the yen is at an all-time low against the dollar in terms of purchasing power parity. We expect the yen to strengthen substantially in the next 12-18 months. And, if that happens, your yen carry trade will become extraordinarily expensive...

"I have been very pleased with my subscriptions to PSIA and True Wealth for several years now and am now a subscriber to your new [S&A] Dividend Grabber service. You probably covered this in an earlier e-mail, but I didn't see it in the primer publication so I wanted to ask anyway. You mentioned... that it doesn't work to buy calls or puts, as the strike prices are simply adjusted to reflect the dividend. Is the same true if you try to short the stock before the dividend payout date?" – Paid-up subscriber Jake

Porter comment: Yes... If you're short, you must pay the dividend to your broker.

"'Dead cat bounce' was coined by Wade Cook (maybe in the '80s). He was one of those GRQ (Get Rich Quick) trading hucksters that vanished from the scene. Goodbye, Wade." – Paid-up subscriber Seth Terr

Porter comment: Wade Cook promised he could teach you how to double your money every 2.5 months. Anyone making such a claim should provoke laughter... but instead Cook ended up with four books on the New York Times bestseller list and was selling "millionaire apprenticeships" for $20,000 each. Barnum was right...

Here's what you should know about Cook. First, he declared personal bankruptcy in 1987. Second, in 2000, Cook's own trading account showed a loss of $1.7 million. Finally, and not surprisingly, his company went bankrupt in 2002.

More recently (February 2007), Cook was convicted of criminal tax evasion. He claimed the money in dispute ($8.9 million) would benefit the Mormon church... but in fact it was used to buy "his and her" Cadillacs, a 40-acre estate, and an oil rig, which Cook named after himself. (Word to the wise: The first sign of an investment liar is when he uses the word "God" in conjunction with an investment strategy.) Despite the fact that he's awaiting sentencing for tax evasion (which will most likely carry a lengthy prison term), Cook continues to advertise a "free" Internet e-zine and to sell investment seminars. Sign up here... if you dare.

"I signed up for the True Wealth Alliance last summer. One of the 'coming attractions' reportedly was a True Income letter that was to be published by Sjug and T. Dyson. The letter was supposed to be launched in "late 2006 or early 2007" from what I recall reading... My current question is whether True Income is still in the pipeline, and whether [it] will still be covering dividends as originally reported in lieu of the new dividend letter?" – Paid-up subscriber J Young

Porter comment: We're still developing True Income. We expect it to launch in the first half of 2007. We got pushed back a bit because we parted ways with the analyst we had slotted to write it. However, Tom Dyson is working on a beta issue now.

But True Income was never intended to be about stocks or dividends. Instead the mission of this letter is to break new ground for S&A Research: True Income will focus solely on bonds and bond-like vehicles, including convertible bonds and convertible preferred bonds. Currently, individual investors can find almost no information on the bond market, yet we've seen over the years that you can make just as much money in bonds as you can in stocks – and bonds are usually much safer.

Regards,

Porter Stansberry

Baltimore, Maryland

March 27, 2007

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