The S&A Digest: Morgan Today, Goldman Tomorrow

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

As of 06/25/2013

Morgan today, Goldman tomorrow... Dividend Achievers' 12% discount... BUD's China play... The one homebuilder to buy... Greenspan on when to buy gold... Our top picks in Mexico... Your ideas for Focus... Kudos from Tilson...

Morgan Stanley now expects a $3.7 billion mortgage writedown and a $2.5 billion hit to earnings in the fourth quarter – and these losses come despite the fact that derivative traders at Morgan Stanley actually bet that subprime mortgages would fall! So... even the banks that were "smart" about the risks of subprime are taking big losses... Again, we wonder what that will mean for Goldman Sachs, the biggest, "smartest" investment bank of them all. As you can see from this chart of Goldman vs. Morgan Stanley, Goldman hasn't taken the plunge... yet.

Another good idea? Editor in chief Brian Hunt notes that income-oriented BlackRock Dividend Achievers (a closed-end fund) is now yielding 7% and trading at an enormous 12% discount to net asset value. That implies a 19% annual return, assuming the stocks in the fund don't appreciate at all in the coming year and the fund's discount closes.

Tsingtao Brewery's shares were suspended from trading in Hong Kong today, pending a major announcement on Monday. We suspect the announcement is good news – possibly a major expansion into Thailand. Tsingtao, as you may know, is the best-known premium beer in China. What you might not know is that Anheuser-Busch is Tsingtao's largest shareholder with a 27% stake. In 2004, Anheuser-Busch bought 100% of the fourth-largest brewer in China – Harbin – for $700 million. Harbin now produces Budweiser-branded beer.

As I explained in the March 2006 issue of my advisory, "Most analysts don't understand... Bud owns both 27% of the most popular premium beer brand in China (Tsingtao) and 100% of Tsingtao's most important foreign rival (Budweiser). That's the king of beers, baby!" We suspect investing in China via exceptionally well-managed U.S. companies will prove to be more rewarding than trying to figure out which Chinese-managed firm will be around in 10 years.

I'd guess the vast majority of my PSIA subscribers shook their heads at my most recent recommendation. Last Friday, I recommended a U.S. homebuilder. No, I'm not crazy. This company is an outlier in the industry, an exception to the destruction. In fact, its sales were up significantly in the most recent quarter. Yesterday, Standard & Poor's downgraded almost every major national homebuilder – D.R. Horton, Pulte, and Lennar. One company was conspicuously absent from the list of downgrades – its ratings were affirmed and unchanged. This is the same homebuilder whose chairman purchased $52.4 million of the stock yesterday. And... we're proud to add... this is the same homebuilder we recommended last Friday.

S&A Oil Report pick Petrobras (PBR) soared 26% yesterday after the Brazilian oil company announced a 5 billion to 8 billion barrel discovery in the offshore Santos Basin. Petrobras owns 65% of the well. Readers are up close to 150% since February. To see what else Matt is recommending, click here...

"Would there be any advantage, at this particular stage, in going back to the gold standard? And the answer is: I don't think so, because we're acting as though we were there. Would it have been a question at least open in 1981, as you put it? And the answer is yes. Remember, the gold price was $800 an ounce. We were dealing with extraordinary imbalances, interest rates were up sharply, the system looked to be highly unstable – and we needed to do something. So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we've behaved as though there are, indeed, real reserves underneath the system."

– Alan Greenspan, responding on July 20, 2005, to Rep. Ron Paul of Texas, who asked when the country should consider returning to the gold standard.

Makes you wonder what he would say now, doesn't it? Gold is more than $850 an ounce. The financial system suffers from serious imbalances. And the dollar seems to be in freefall.

We're starting to get pretty fired up about the upcoming S&A Alliance Conference at the Fairmont Mayakoba in Mexico. On the Monday after Thanksgiving... when we should be hard at work at our chilly offices in Baltimore... we'll be on the beach in Playa del Carmen with several hundred of our best subscribers, our entire editorial review board, and our whole team of analysts. We promise to stay sober until lunch…

This year, for the first time, we've decided to turn the meeting into something of a competition. Editors will present their single best idea for 2008. After the presentations, we'll poll both our audience and our editors (no, the editors can't vote for themselves) to come up with a winner. Will the audience and the editors pick the same idea? We don't know. Either way, we'll leave Mexico with a dozen great ideas for high returns in 2008. S&A Alliance members that can't attend, don't worry. We'll send you a list of all the ideas mentioned and let you know which ideas were voted the "winners." (If you're not an S&A Alliance member, it's not too late to join. Click here for more information.)

Says 12% Letter editor Tom Dyson of his upcoming presentation in Mexico: "Man... I'm really excited about my Alliance pick. This is one of those stocks that makes me tremble every time I look at its financial statement. Seriously, I'm trembling a little now actually. This stock pays a 13% dividend. Normally, when I see a 13% dividend, my risk sensors start ringing... . [but] This is a safe 13% dividend. Cash flow at this company is so healthy, barely half of it is used to pay this whopping dividend. The rest goes into the company's bank for a rainy day. In fact, management has so much cash coming in, it actually wants to raise the dividend even more... to 14%... next year!" Tom's idea could easily be the audience's favorite idea – income stocks are very popular with our subscribers.

We asked for your help two days ago with our newest product under development, Stansberry Focus. As you know, the idea is simply to produce a focused, high-confidence "buy" list and to manage it as we would a real portfolio. Although we envision our list having a maximum of eight names, we asked you which two stocks would you keep if you were only allowed to own two. Here's a sample of the responses:

Mike Breslin: EnCana Corp., Berkshire Hathaway

Geordy Rostad: Reality Income

Susan Coursey: Icahn Enterprises, Nokia

Robin Jerauld: Procter & Gamble, Berkshire Hathaway

Jim Pursley: Harvest Natural Resources, SXC Health Solutions

Wayne West: BHP, Suncor

Ethan Jackson: Arcelor Mittal, ABB

Travis Ferrell: Marathon Oil, Verizon

Boris Shpungin: Valence, Evergreen Solar

We'd like to hear from more of you, so I'll put the question out again. Which two stocks would you buy today, if you had to put all of your liquid assets into only two stocks?

And remember: In a focused portfolio avoiding risk is the paramount consideration. You simply cannot afford the risk of buying emerging technology stocks. Even proven stocks in deeply cyclical industries need to be considered very skeptically.

We also got a great suggestion on pricing our new Focus product from Travis Ferrell: "It would be nice if the Focus could be priced separately in a lifetime subscription for those of us who desire to build portfolios that will mimic the Buffettesque approach of buying value and leaving it alone."

Yes, that's exactly right. We're developing a sales model that will match the timeframe of these investments – three to five years. During conversations about Stansberry Focus, Michael Palmer, our top advertising writer, reminded me of Charlie Munger's famous line: "If you buy a few great companies, you can sit on your ass." Ideally, Stansberry Focus would enable you to buy one or two stocks each year, do nothing else with your finances, and earn 15%-20% a year in dividends and capital appreciation. Assuming we can do it (and I think we can)... what's a service like that worth?

New highs: Petrobras (PBR), BG Group (BRGYY.PK), streetTRACKS Gold (GLD), Annaly (NLY), Harvest Natural Resources (HNR), Petro-Canada (PCZ), Berkshire Hathaway (BRK-A).

In the mailbag... My letter from GM's "chairman" garnered a few kudos for your frequently maligned editor, including one from Whitney Tilson. Tilson writes a column for The Financial Times and is one of the founders of the Value Investing Congress. Tilson also manages the hedge fund T2 Partners and runs two mutual funds, the Tilson Focus Fund and the Tilson Dividend Fund. It sure feels a lot better to get a "nice job" from a guy like Tilson than it does to get railroaded by... ahem... other people. Whether your comments are nice or otherwise... we love to read them. And, while we can't respond individually, we do read every e-mail that's sent to us. Send yours here: feedback@stansberryresearch.com.

"Dear Porter, Thanks for posting my comment this evening, if only to deride it. I didn't know Growth Stock Wire was free; I pay a subscription for Growth Stock and assumed that was part of it. The whole market got killed today, Weds. On Tu. morning, Jeff Clark recommended exiting yesterday. You will have noted his title, "Trade after breakfast, profit by lunch". Tuesday. Yahoo traded at 30 on Tue. Therefore, it is disingenuous of you to infer that today's 28 close is relevant."

– Paid-up subscriber Barry Hatfield

Porter comment: Barry, I was being nice. But now, since you've repeated your comments in the face of obvious and overwhelming evidence that your complaint was nonsensical, I'll be blunt. Your e-mail was perhaps the most inane we have ever received. We can't remember getting such a negative e-mail about what was obviously profitable advice. Furthermore, this advice was given to you for free. See the other e-mails (below).

(In case you missed the early conversations... Barry was upset that Jeff Clark recommended shorting shares of Yahoo on Tuesday morning, before the market opened. Since then, the stock has fallen from around $31 to below $26, a 16% move, which would have resulted in even larger profits for anyone who bought puts. The chart below shows the action in the stock this week.)

Yahoo Inc

"I found Barry Hatfield's note interesting in regard to the Growth Stock Wire written by Jeff Clark. I couldn't disagree more concerning his criticism of the discussion on Yahoo stock. I, like so many others, had call options on Yahoo expecting a surge upward when Alibaba started trading in China since Yahoo owned like 17% of this firm and the Alibaba stock was expected to soar as an IPO. Yahoo was going lower but I was holding on waiting for the beginning of this IPO's trading. Then on Tuesday morning I received the Growth Stock Wire. I paid particular attention when I saw it was written by Jeff Clark, who I follow very closely. He said that after the pop up we should short Yahoo. Well I didn't see the pop up but I was ready when I saw Yahoo falling in the afternoon. I was prepared with the trading code for my Yahoo shorts. I sold the calls quickly and purchased puts. My timing was perfect. Then I watched as Yahoo fell and I was saving $$$ by not having those calls anymore. The run up continued on my puts all through Wednesday. I did very well and I was grateful for the heads-up from Jeff. That's why I was surprised by Mr. Hatfield's comments. I subscribe to Jeff's Short Report as well as his Advanced Income report, which I just started. I always look forward to what he has to say because he so thoroughly researches and analyzes what he reports. No one can be 100% especially in today's markets. But, I can see where he is coming from to base my own investing decisions."

– Paid-up subscriber Barry Getis

"Jeff Clark is one sweet idiot! His advise just allowed me to make 279% on a trade while the market tanked. Keep the advice coming. I appreciate it."

– Paid-up subscriber Todd Nelson

"Tell Jeff Clark thanks for the YAHOO article today in the Growth Stock Wire: 'Make This Trade After Breakfast and Profit by Lunchtime.' His recommendation was spot on. I bought Nov. $30 puts on Yahoo at the open and within 45 minutes sold them for a 62% profit." – Paid-up subscriber Dave

Regards,

Porter Stansberry

Baltimore, Maryland

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