THE S&A DIGEST

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

As of 07/05/2013

Still bullish on Big Pharma… Jeff goes long the dollar... Ferris wants to become a subprime mortgage broker... The real question for Nardelli... BlackBerry or Treo?...

First, a public note to a private subscriber. Carolyn A. was the very first free subscriber to DailyWealth. She signed up to get Steve’s free daily from a Google advertisement on January 17. And now… almost a year later… she’s finally trying the good stuff. Yesterday, she paid for Steve’s newsletter, True Wealth. Welcome aboard, Carolyn! (We only need you to buy two or three hundred more newsletters to break even on our Google marketing efforts.)

Once in motion, big trends are hard to stop. One of our group’s big ideas for 2006 was that "Big Pharma" would bounce back. These firms have arranged for the government to pay for prescription drugs without allowing the government to buy them at discounted prices. It’s a $40 billion-per-year boondoggle. That kind of money should allow them to restock their pipelines, even if a few more drugs fail. I’ve been watching Pfizer (PFE) and Merck (MRK) closely this week to see how their share prices react to Pfizer’s bad news. I think our thesis is still intact.

Jeff Clark has put on a contrarian, long-dollar trade. I like the idea. It pays to fade the crowd. On Monday, Jeff will publish his best long-term trading ideas – long and short – for 2007. (To Jeff, "long-term" usually means after lunch.) See Monday’s Short Report.

Since late 2002, Research in Motion (RIM), maker of the ubiquitous BlackBerry wireless phone/e-mail device, has seen its share price move from $4 to more than $131. None of Stansberry Research’s analysts picked it – and for that we apologize. But perhaps we can make it up to you on the way down. RIM, which earned $400 million on sales of $2.3 billion over the last 12 months, is now valued by investors for $24 billion.

I bought one of these wireless "CrackBerry" widgets last week. The Verizon (VZ) clerk assured me that the Treo 700p is the best available. So I bought it. The little keypad is surprisingly easy to use… and now I can read your wonderful e-mails 24/7. The Treo is made by Palm. On sales of $1.5 billion over the last year, Palm earned $334 million. Minus its $500 million net cash position, you could buy all of Palm for $1 billion, or about three times earnings. Now… considering that they make essentially the same gizmos and sell them to essentially the same customers… can you think of a reason why RIM should be worth 24 times more than Palm?

Dan Ferris goes where other investors fear to tread… "Subprime mortgage origination is a great business: low capital intensity, high return on equity. In fact, New Century Financial has a great business. The only problem is that it took the profits from this cash-gusher of a business it had mastered and put it into a low-return, capital-intensive business it didn’t really know well – holding portfolios of subprime mortgages… Option One is also an awesome cash-gusher, but I’ve never, ever heard anyone say that about it or subprime in general. It’s like there’s a media blackout on saying good things about subprime lending... If I were a young guy with a fresh finance degree under my belt, I’d go one of three places: investment banking, money management, or subprime lending. All three have the same characteristics: other people’s money, low capital requirements, and oversized compensation."

The headlines say Home Depot (HD) routinely backdated options from 1981 through 2000, resulting in a $200 million expense over the period. As the story goes, the practice immediately stopped when Bob Nardelli took over. Bully for Nardelli. But, if he immediately put a stop to the backdating, he must have known it was going on. And if he knew back in 2000 that Home Depot’s options-granting practices were fraudulent and its accounting was wrong, why didn’t he disclose the problems back then? If he had, the $200 million expense would have been significantly mitigated. The largest backdated grants came at the end of the period and they could have been canceled before they were exercised.

New Highs: AutoZone (AZO), Coke (KO), Oakley (OO), Enterprise Products (EPD), Alnylam (ALNY), Berkshire (BRKA), Lexmark (LXK), Macquarie Global (MGU)

** The mailbag felt light today. Is the holiday season softening some of the rough edges in our audience? Letters here: feedback@stansberryresearch.com.

Something I didn’t know about USG: "On alternate weekends, Matt Kenseth will drive a car sponsored by USG Sheetrock. While NASCAR may not be the #1 sport that your clientele follows, it has become a marketer’s dream and is very mainstream to someone like me working in Missouri." – Paid-up subscriber Jeff Dickman

"Why don’t you recommend The Creature From Jekyll Island… in addition to

Demise of the Dollar? They’re both good, but I think I learned much more

from Edward Griffin." – Paid-up subscriber John Cress

"My first investing newsletter in about 1999 was by Porter Stansberry and it was the most helpful ever because of the education it provided about sizing investments, letting your winners run and cutting your losers early with trailing stops... I recently reviewed our portfolios to let my husband know we could afford to spend $2,000 for our granddaughter to go to a 10 day medical orientation (she is a junior in high school and wants to be a doctor). My quarterly summary chart showed that from 9/04 to 9/06 our portfolio increased from $296,000 to $402,000 which is almost 36%. Reading all the investment newsletters is worth the time and money it takes..." – Paid-up subscriber to True Wealth, Big Trend Report, and PSIA, Chris McCarty

"Even though I’m retired, I don’t have time to read all the extra STUFF you put into your letters. Get to the point fast, tell the reason you like an investment in few words, and give your expectations on this investment. Who knows, if you keep it short you may even get some professional brokers to subscribe to your letters." – Paid-up subscriber Bob Cooper

"Do you really, really want to know what I really, really feel? I feel you guys are terrific, an overflowing potpourri of good intentions, good writing, fairness, far-sightedness, fun, eclecticism, wisdom, wit, evolution, contradiction, and humility. Keep on rolling. I don’t mind the extraneous, personal stuff. After all, finance can become pretty boring after a while, even if you’re making money." – Paid-up subscriber Mark Swann

Regards,

Porter Stansberry

Baltimore, Maryland

December 7, 2006

Stansberry & Associates Top 10 Open Recommendations

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