The S&A Digest: Don't Be Bigoted

Goldsmith's update from VIC... Imperial's profits... Citi's global warming play... Icahn's MOT bid fails... "We're doomed"... What, me bigoted?

Dan Ferris and Sean Goldsmith are attending the Value Investing Congress (VIC), in Los Angeles this week. Not surprisingly, Dan Ferris (editor of Extreme Value) is a major draw. According to Goldsmith, "Two guys working for a major money manger couldn't stop thanking Dan Ferris at lunch." What was surprising? Apparently, the guy running the conference (John Schwartz) is a fan of Dividend Grabber. Now Goldsmith is having a hard time keeping his head on his shoulders.

We'll bring you the best ideas of the conference... but so far all the presentations have been about detecting accounting fraud. Want to know how to detect fraud? If operating income growth divided by net income growth is less than one, there might be a problem. To put this concept to work for you, read the essay below about iMergent (IIG).

S&A Dividend Grabber pick Imperial Sugar (IPSU) gained almost 13% after announcing a 22% rise in earnings for the quarter. Readers have made 20% since the recommendation.

Over the next 10 years, 12% Letter pick Citigroup (C) will provide $50 billion through financings and investments to initiatives that combat global warming. The bank said that $10 billion of that money has already been provided through its current activities.

S&A Oil Report pick Petrobras (PBR) wants to sell 100% of its two Bolivian refineries recently nationalized by President Evo Morales. The company is asking an undisclosed, but "just," price and will give Bolivia two days to respond. The offer comes after Morales issued a decree banning Petrobras from exporting certain refined products.

Carl Icahn failed to get a seat on Extreme Value pick Motorola's (MOT) board, according to preliminary results released last night.

New highs: Anglo American (AAUK), Brookfield Asset Management (BAM), BHP Billiton (BHP), Disney (DIS), Exelon (EXC), Freeport-McMoRan (FCX), Given Imaging (GIVN), Coca-Cola (KO), Oneok (OKE), Posco (PKX), Pharma HOLDRs (PPH).

The mailbag was practically seething last night. I've never been called a bigot in so many interesting ways. But, I promise to keep reading the mail. So keep the criticism coming: feedback@stansberryresearch.com.

"We are doomed, doomed I tell you. On oh so many levels. The price of gas just keeps going up, and no one takes notice. Or, so it seems. Those driving huge SUVs, and full-sized pickup trucks are still speeding along. None seem to take notice that just slowing down to 5 MPH over the speed limit would save a lot of gas. We all just seem to bitch and moan a little... when the tank needs filling. Some do not even know how much the gas costs. They just put the credit card in the slot and fill up the tank. Are we doomed to use up all of the gas just because no one notices what it costs? Are we doomed to watch the world end because we ran out of gas? Are the middle and working classes the only ones that have taken the slightest notice of the rising cost of fuel? Is everyone waiting for the government to take charge and solve the problem? Oh, we are doomed if that is the case." – Paid-up subscriber Larry

Porter comment: I am waiting for the government to take charge. When it does, that's the time to buy oil and gas futures. That's when the price will really soar – when the government starts to "help."

"You have not offended me yet. But keep trying... Success covers a multitude of sins." – Paid-up subscriber Houston VanHoy

Porter comment: Well, I might push you over the edge today. See below.

"Porter – regarding your comments on an international letter, I would have agreed with you ten years ago. However, while I don't have objective data to back this up, subjectively it seems that more and more Americans are open to foreign stock investments, as the media has done a great job talking about the returns in these foreign markets. Even Warren Buffett is investing in international stocks. Why not have a survey conducted of your subscribers to gauge interest in an international stock advisory? That way you will know, and if you publish the results, your subscribers who are looking for international stocks will appreciate that you tried. As for me, you can count me as interested in an international stock advisory that would be written by one of your value editors, such as Ferris." – Paid-up subscriber Jake Buckstead

Porter comment: Done. Anyone who would like to subscribe to International Extreme Value ($1,000 per year), please e-mail us your name and your pledge to pay for the subscription when we bill you. Please, do not send us your credit card number, just your pledge.

Dan Ferris and I will do the research and the writing, just as we worked together when we launched Extreme Value in 2002. (Not many people know this... but I picked a few of Dan's big winners.) The letter will be of the same quality and will be written to the same standards as Extreme Value. It will feature deep value stocks available on foreign exchanges, only some of which will have ADRs or a listing in New York.

If you don't like it, you can have your money back within 30 days. However, we will only publish the letter if we get at least 1,000 pledges to pay for it. (It'll never happen, not in a million years.) Please don't pledge to pay for the letter if you don't or won't actually pay because I will collect (assuming we get enough interested people to move forward with the project).

"The reason a newsletter advising overseas stocks does not work for you is generally you yanks have your head in the sand and really don't know and don't care what is happening anywhere else. You should tell your readers the world is getting smaller and the US dollar is falling for good reasons. The US is going down." – Paid-up subscriber Ray

Porter comment: I'm sure the dollar is doomed (it has been since 1971). But that doesn't mean America isn't a great place to invest.

"I subscribed to S&A Penny Letter because I liked the idea of stocks undervalued at prices below $10 which had the potential for good growth. Then come Sjuggerud's teasing newsletters about a real estate stock in Macau for $5 but no mention of it in the Penny Letter. If I want to know more about this investment then I must subscribe to a 4th newsletter, so what gives? I guess I must conclude that if this stock does not show up in the S&A Penny Letter, then it must not be a really good investment after all, in spite of the price." – Paid-up subscriber Char

Porter comment: So... because we publish S&A Penny Letter (by Dan Ferris) no one else at S&A should be allowed to recommend stocks that happen to have a nominal value under $10? That doesn't make any sense.

"Not only did you miss Akamai's stop loss but also American Real Estate LP. Are there extenuating circumstances why ACP should not be sold? (Such as Icahn being the majority holder) It is now at 30.2% trailing stop." – Paid-up subscriber Susan Phillips

Porter comment: Only this one – the stock is in the recommended portfolio of Dan Ferris, in the pages of Extreme Value. If you read the back page of Extreme Value, you'll discover that Dan Ferris does not recommend using trailing stops (or stops of any kind, for that matter).

"I was a writer and wordsmith for some 40 years. I have never seen anything better than your response to the GM situation. Good work!" – Paid up subscriber John Fritchey

Porter comment: That's a great compliment. Thank you. It's easy to write when you're passionate about an idea.

Don't Be Bigoted

I made time today to read this week's Barron's.

Turning through the pages this morning, I couldn't help but start laughing – big, deep, belly laughs... the kind of laugh my friends make fun of. I got a few looks and raised eyebrows in the coffee shop. But I couldn't help it. It was too perfect given the grief I've been getting over my Mormon observations, which stemmed from my Wade Cook critique.

What was so funny?

Last week, Barron's published a big exposé on Donald Danks, the CEO of a company called iMergent (IIG).

iMergent sells software and services that supposedly allow its clients to set up online businesses. Rather than sell the software online, the company hosts about 1,000 free seminars around the country where it pushes its expensive software on folks who are... ahem... very inexperienced with computers. The seminar sales team promises you can strike it rich on the Internet using the software.

Through the years, the firm has attracted a lot of attention from short sellers and state regulatory agencies (Texas, California, Indiana) because a surprisingly large number of iMergent's customers feel ripped off when they can't get their $5,000 software packages to work. (Not to mention you can set up a web business for next to nothing through reputable firms like Amazon.com and eBay.) Currently, iMergent is being pursued by the SEC, Illinois, Florida, and Maryland.

It seems strange for such a tiny, unprofitable company to bother with a public listing. (Don't let the company's accounting fool you. iMergent says its net income over the last three years totaled $28.9 million. But according to the company's actual cash from operations, the company lost about $200,000 over the last three years combined.)

Why would a company that's bleeding cash want a public listing? Public company expenses (lawyers, auditing, etc.) run about $2 million per year.

Well... maybe this has something to do with it: According to Barron's, iMergent was founded nine years ago (as "Netgateway") with the help of Shelly Singhal, an infamous penny-stock promoter now being sued in California under racketeering laws. But wait... there's more... Donald Danks' first two companies, Advantage Life Products and Prosoft I-Net enjoyed short, sharp stock market run-ups before going bankrupt. And now, Barron's says it has tape recordings of Donald Danks telling certain investors privately that the company would blow out its earnings forecast this week, a clear violation of Regulation FD (the fair disclosure rule that prevents a company from releasing information to some investors, but not others). Mmmnn... maybe these guys are better at pumping and dumping stocks than they are at running a real business.

One more thing... You'll never guess where the company is headquartered. Wait, that's no fair. You're being bigoted. Okay. How about this one: Where did most of iMergent's executives go to college? Oh, that's a tough one, isn't it? But I bet you'll figure it out.

Regards,

Porter Stansberry

Baltimore, Maryland

May 8, 2007

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