Wal-Mart's Mexican disaster... A buying opportunity?... Gold stocks at new lows... Jeff Clark sees a rally... First Solar plunges today... Our credibility slips, again...
Over the weekend, the New York Times published an investigative piece accusing the discount-retail juggernaut Wal-Mart of bribing government officials in Mexico.
The piece begins by quoting a September 2005 e-mail to a senior Wal-Mart attorney from a former executive at the company's largest foreign subsidiary, Wal-Mart de Mexico. (Of all its stores worldwide, one in five Wal-Marts is in Mexico.) The executive described in detail how the company used bribes to quickly expand and dominate the Mexican market. The informant claims he was the lawyer in charge of obtaining construction permits for Wal-Mart de Mexico. After receiving the e-mail, according to the article…
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Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico's top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart's headquarters in Bentonville, Ark.
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In a confidential report to his superiors, Wal-Mart's lead investigator, a former F.B.I. special agent, summed up their initial findings this way: "There is reasonable suspicion to believe that Mexican and USA laws have been violated."
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It's a long article. (You can read it here.) It alleges the company covered up the bribes – in part by using fraudulent accounting to hide payments – and implicates the company's top executives, including CEO Mike Duke. The company launched an investigation after the anonymous tip, but it ended in 2006 with no action taken. And many of the executives implicated in the bribery had been promoted to even higher levels in the company. For example, Eduardo Castro-Wright – the man who headed Wal-Mart de Mexico at the time and allegedly oversaw the bribes – has since been promoted to vice chairman and head of Wal-Mart's U.S. division.
This is the first time these allegations have been made public. If these charges are true, Wal-Mart will have violated the Foreign Corrupt Practices Act, a federal law that makes it illegal for corporations or their subsidiaries to bribe foreign officials.
According to the article... Wal-Mart has informed the U.S. Justice Department that it is again investigating the bribery allegations in Mexico, but "stressed the issues were limited to 'discrete' cases." In a filing with the Securities and Exchange Commission, Wal-Mart said it does not expect the investigations to result in "a material adverse effect" on the business.
This is a huge story... The company faces a possible $9 billion fine. Wal-Mart shares are down nearly 5% today on heavy volume. And the stock could fall further as more negative headlines come out.
But our resident Wal-Mart expert Dan Ferris – who first recommended the company to Extreme Value subscribers in 2006 – says not to worry… chances are good that Wal-Mart will come out of this unscathed.
Dan says the company will likely pay the fine (which he thinks could end up being around $4.5 billion, or 1% of sales) and continue producing $26 billion in annual operating income. Markets have short memories, and they'll likely forget this ordeal in a couple years. "This is EXACTLY the sort of thing that makes a World Dominator a great buy," Dan said in an e-mail he sent to us today. "It is a 'huge but solvable one-time problem,' to use Warren Buffett's phrase."
Dan sent his Extreme Value subscribers an update on Wal-Mart today. If you'd like to sign up for Extreme Value and get Dan's latest advice on the Wal-Mart rout, click here...
The much larger story, in our minds, is the continued underperformance of gold stocks to the price of gold. Take a look at this five-year chart of the Gold Bugs Index (the HUI) versus the price of gold... the HUI represents a basket of gold stocks… North America's three largest gold miners (by market cap) – Barrick Gold, Newmont, and Goldcorp – make up about 43% of the index.
Today, major mining stocks like Barrick Gold, Newmont, Goldcorp, and Allied Nevada are trading at 52-week lows. Meanwhile, the price of gold has stayed steady this year (trading between $1,600 and $1,800 an ounce). Gold stocks are cheaper relative to the price of gold than at almost any time since the gold bull market began 11 years ago. The only time the ratio was lower was in 2008, when the financial crisis drove down the prices of nearly all stocks.
We checked in with S&A Short Report editor Jeff Clark for an update on the gold market... He's been following – and successfully trading – the gold markets for years.
Just last fall, Jeff enjoyed an incredible run of success trading gold stocks. Among his trades, he helped S&A Short Report subscribers book 140% in one week by shorting gold (through puts on GLD)… Then, he booked an 80% gain in two weeks on the Market Vectors Gold Miners Fund (GDX)… 100% in three weeks on Gold Fields… 100% in three weeks on Seabridge… 70% in one month on Kinross Gold, and many more.
For the past four months, he's been waiting for gold stocks to retest their December lows.
Jeff e-mailed me to tell me he thinks today could be an "exhaustion day" for the sector. The technical indicators he watches are stacking up for a big rally in the sector... "We have extraordinarily cheap fundamentals. And we now have potentially bullish technical developments," he said. "On top of all that, investor sentiment – a contrary indicator – toward gold stocks is as bearish as I've seen it in a decade."
Jeff concluded... "I can't help thinking that five or six months from now, we'll look back and say, 'I can't believe we had the chance to buy those stocks so cheap.'"
To learn about the systems Jeff uses to trade the gold market and be in position to receive his next gold-stock recommendation, click here...
One of our favorite short plays, solar-energy bellwether First Solar, fell nearly 7% today on an analyst downgrade... It was the biggest decliner in the S&P 500.
Securities firm Maxim Group LLC downgraded the company to a "sell," saying First Solar's panels have lost their cost advantage as prices have fallen industrywide. "Though we had reserved hope its project business would prove sustainable, we believe the bull case for First Solar now rests solely on hope, not reality," Maxim analyst Aaron Chew said in a note to clients.
Sell ratings are rare on Wall Street... Particularly from a "sell-side" firm like Maxim… Sell-side research comes from investment banks and brokerages that make money by selling securities to the public. ("Buy-side" operations, like hedge funds, make profits by investing in and trading securities.)
Sell-side firms depend on the big fees they get from companies peddling shares, so their research can be conflicted. Telling your clients to sell a company's shares makes it pretty tough to get that company's future business…
So we commend Chew for taking his "sell" a step further, saying the bull case for First Solar "rests solely on hope, not reality." Rarely do we see this kind of honest talk in sell-side research. For our latest research on First Solar, please read the March 9 Digest.
New 52-week highs (as of 4/20/12): W.R. Berkley (WRB), Calpine (CPN), Hershey (HSY), Texas Pacific Land Trust (TPL), and Altria Group (MO).
We love it when we get negative feedback about a stock we recently recommended... It means we're usually right. We have no problems being on the contrarian side of things here at S&A. And it seems we've struck a chord with our recent bullishness on the banking sector. A few subscribers chime in below. Are you bullish on banks? Or even better, are you a banker with some personal stories for us? Send your feedback to feedback@stansberryresearch.com.
"Mr. Porter you must have balls the size of sanitation trucks to recommend banks, no wonder you are having back trouble after carrying those boys around. Supporting banks! Buying bank stocks! I must be mad... but then again maybe that's what it takes to profit in times like this. Thanks for the truth." – Paid-up subscriber Ervin Siemens
"Your credibility has really slipped with this BOA stock selection. 'Big Banks' along with totally corrupt politicians are our nations' biggest problems. I recently transferred all my accounts and building loan to a credit union. I will re-fi my house with the first mortgage company that will NOT sell it to FNMA. The insanity must stop ... and I will do my small part.
"Would you have bought the stock of the chemical company that supplied cyanide to the Concentration Camps? (Harsh example... but I despise 'Too Big To Fail Banks') You are either part of the solution or part of the problem.
"It seems most of us are just 'Boiling Frogs' at this point. I urge you to rethink, please... you have much better selections in you... than BOA." – Paid-up subscriber BJR
"Until recently I had never invested any money outside my retirement account. In 21 years of investing a few thousand dollars each year, with help from a broker, I have only amassed about 100,000 dollars. Since I started receiving S&A Digest, Growth Stock Wire, DailyWealth, and Frank Curzio's Small Stock Specialist, I have learned so much about the market and finance in general. I can't wait to check my e-mails each day and look forward to yours and Frank's podcast each week.
"I am a truck driver by trade, and a darn good one at that. The reason that I consider myself so good is not only am I a safe driver, I also know my truck front to back, top to bottom. I inspect it thoroughly before each trip and listen closely to it as I travel America's highways. Because of my mechanical knowledge of it, I very rarely breakdown because I see problems developing before they become a problem. I have used this knowledge to build a small business as a contractor with the second-largest trucking company in the world, which generated my company almost 3 million in revenue last year and should grow to about 3.5 million this year. I know that this is small beans to a gentleman such as yourself but I am proud of what I've accomplished with nothing more than a high school education.
"My point though is this. Porter, you understand the markets and finance like I understand my trucks, and I want to understand the markets and finance the way you do. I will not ever quit reading and learning because I know that the markets will never quit changing. Thanks for sharing your knowledge with folks such as myself! I just read your Digest dated 4/20/2012. I think I'll go increase my position Bank of America!!" – Paid-up subscriber Perry Mecum
Regards,
Sean Goldsmith
New York, New York
April 23, 2012
Over the weekend, the New York Times published an investigative piece accusing the discount-retail juggernaut Wal-Mart of bribing government officials in Mexico.
The piece begins by quoting a September 2005 e-mail to a senior Wal-Mart attorney from a former executive at the company's largest foreign subsidiary, Wal-Mart de Mexico. (Of all its stores worldwide, one in five Wal-Marts is in Mexico.) The executive described in detail how the company used bribes to quickly expand and dominate the Mexican market. The informant claims he was the lawyer in charge of obtaining construction permits for Wal-Mart de Mexico. After receiving the e-mail, according to the article…
|
Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico's top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart's headquarters in Bentonville, Ark. |
|
In a confidential report to his superiors, Wal-Mart's lead investigator, a former F.B.I. special agent, summed up their initial findings this way: "There is reasonable suspicion to believe that Mexican and USA laws have been violated." |
It's a long article. (You can read it here.) It alleges the company covered up the bribes – in part by using fraudulent accounting to hide payments – and implicates the company's top executives, including CEO Mike Duke. The company launched an investigation after the anonymous tip, but it ended in 2006 with no action taken. And many of the executives implicated in the bribery had been promoted to even higher levels in the company. For example, Eduardo Castro-Wright – the man who headed Wal-Mart de Mexico at the time and allegedly oversaw the bribes – has since been promoted to vice chairman and head of Wal-Mart's U.S. division.
This is the first time these allegations have been made public. If these charges are true, Wal-Mart will have violated the Foreign Corrupt Practices Act, a federal law that makes it illegal for corporations or their subsidiaries to bribe foreign officials.
According to the article... Wal-Mart has informed the U.S. Justice Department that it is again investigating the bribery allegations in Mexico, but "stressed the issues were limited to 'discrete' cases." In a filing with the Securities and Exchange Commission, Wal-Mart said it does not expect the investigations to result in "a material adverse effect" on the business.
This is a huge story... The company faces a possible $9 billion fine. Wal-Mart shares are down nearly 5% today on heavy volume. And the stock could fall further as more negative headlines come out.
But our resident Wal-Mart expert Dan Ferris – who first recommended the company to Extreme Value subscribers in 2006 – says not to worry… chances are good that Wal-Mart will come out of this unscathed.
Dan says the company will likely pay the fine (which he thinks could end up being around $4.5 billion, or 1% of sales) and continue producing $26 billion in annual operating income. Markets have short memories, and they'll likely forget this ordeal in a couple years. "This is EXACTLY the sort of thing that makes a World Dominator a great buy," Dan said in an e-mail he sent to us today. "It is a 'huge but solvable one-time problem,' to use Warren Buffett's phrase."
Dan sent his Extreme Value subscribers an update on Wal-Mart today. If you'd like to sign up for Extreme Value and get Dan's latest advice on the Wal-Mart rout, click here...
The much larger story, in our minds, is the continued underperformance of gold stocks to the price of gold. Take a look at this five-year chart of the Gold Bugs Index (the HUI) versus the price of gold... the HUI represents a basket of gold stocks… North America's three largest gold miners (by market cap) – Barrick Gold, Newmont, and Goldcorp – make up about 43% of the index.
Today, major mining stocks like Barrick Gold, Newmont, Goldcorp, and Allied Nevada are trading at 52-week lows. Meanwhile, the price of gold has stayed steady this year (trading between $1,600 and $1,800 an ounce). Gold stocks are cheaper relative to the price of gold than at almost any time since the gold bull market began 11 years ago. The only time the ratio was lower was in 2008, when the financial crisis drove down the prices of nearly all stocks.
We checked in with S&A Short Report editor Jeff Clark for an update on the gold market... He's been following – and successfully trading – the gold markets for years.
Just last fall, Jeff enjoyed an incredible run of success trading gold stocks. Among his trades, he helped S&A Short Report subscribers book 140% in one week by shorting gold (through puts on GLD)… Then, he booked an 80% gain in two weeks on the Market Vectors Gold Miners Fund (GDX)… 100% in three weeks on Gold Fields… 100% in three weeks on Seabridge… 70% in one month on Kinross Gold, and many more.
For the past four months, he's been waiting for gold stocks to retest their December lows.
Jeff e-mailed me to tell me he thinks today could be an "exhaustion day" for the sector. The technical indicators he watches are stacking up for a big rally in the sector... "We have extraordinarily cheap fundamentals. And we now have potentially bullish technical developments," he said. "On top of all that, investor sentiment – a contrary indicator – toward gold stocks is as bearish as I've seen it in a decade."
Jeff concluded... "I can't help thinking that five or six months from now, we'll look back and say, 'I can't believe we had the chance to buy those stocks so cheap.'"
To learn about the systems Jeff uses to trade the gold market and be in position to receive his next gold-stock recommendation, click here...
One of our favorite short plays, solar-energy bellwether First Solar, fell nearly 7% today on an analyst downgrade... It was the biggest decliner in the S&P 500.
Securities firm Maxim Group LLC downgraded the company to a "sell," saying First Solar's panels have lost their cost advantage as prices have fallen industrywide. "Though we had reserved hope its project business would prove sustainable, we believe the bull case for First Solar now rests solely on hope, not reality," Maxim analyst Aaron Chew said in a note to clients.
Sell ratings are rare on Wall Street... Particularly from a "sell-side" firm like Maxim… Sell-side research comes from investment banks and brokerages that make money by selling securities to the public. ("Buy-side" operations, like hedge funds, make profits by investing in and trading securities.)
Sell-side firms depend on the big fees they get from companies peddling shares, so their research can be conflicted. Telling your clients to sell a company's shares makes it pretty tough to get that company's future business…
So we commend Chew for taking his "sell" a step further, saying the bull case for First Solar "rests solely on hope, not reality." Rarely do we see this kind of honest talk in sell-side research. For our latest research on First Solar, please read the March 9 Digest.
New 52-week highs (as of 4/20/12): W.R. Berkley (WRB), Calpine (CPN), Hershey (HSY), Texas Pacific Land Trust (TPL), and Altria Group (MO).
We love it when we get negative feedback about a stock we recently recommended... It means we're usually right. We have no problems being on the contrarian side of things here at S&A. And it seems we've struck a chord with our recent bullishness on the banking sector. A few subscribers chime in below. Are you bullish on banks? Or even better, are you a banker with some personal stories for us? Send your feedback to feedback@stansberryresearch.com.
"Mr. Porter you must have balls the size of sanitation trucks to recommend banks, no wonder you are having back trouble after carrying those boys around. Supporting banks! Buying bank stocks! I must be mad... but then again maybe that's what it takes to profit in times like this. Thanks for the truth." – Paid-up subscriber Ervin Siemens
"Your credibility has really slipped with this BOA stock selection. 'Big Banks' along with totally corrupt politicians are our nations' biggest problems. I recently transferred all my accounts and building loan to a credit union. I will re-fi my house with the first mortgage company that will NOT sell it to FNMA. The insanity must stop ... and I will do my small part.
"Would you have bought the stock of the chemical company that supplied cyanide to the Concentration Camps? (Harsh example... but I despise 'Too Big To Fail Banks') You are either part of the solution or part of the problem.
"It seems most of us are just 'Boiling Frogs' at this point. I urge you to rethink, please... you have much better selections in you... than BOA." – Paid-up subscriber BJR
"Until recently I had never invested any money outside my retirement account. In 21 years of investing a few thousand dollars each year, with help from a broker, I have only amassed about 100,000 dollars. Since I started receiving S&A Digest, Growth Stock Wire, DailyWealth, and Frank Curzio's Small Stock Specialist, I have learned so much about the market and finance in general. I can't wait to check my e-mails each day and look forward to yours and Frank's podcast each week.
"I am a truck driver by trade, and a darn good one at that. The reason that I consider myself so good is not only am I a safe driver, I also know my truck front to back, top to bottom. I inspect it thoroughly before each trip and listen closely to it as I travel America's highways. Because of my mechanical knowledge of it, I very rarely breakdown because I see problems developing before they become a problem. I have used this knowledge to build a small business as a contractor with the second-largest trucking company in the world, which generated my company almost 3 million in revenue last year and should grow to about 3.5 million this year. I know that this is small beans to a gentleman such as yourself but I am proud of what I've accomplished with nothing more than a high school education.
"My point though is this. Porter, you understand the markets and finance like I understand my trucks, and I want to understand the markets and finance the way you do. I will not ever quit reading and learning because I know that the markets will never quit changing. Thanks for sharing your knowledge with folks such as myself! I just read your Digest dated 4/20/2012. I think I'll go increase my position Bank of America!!" – Paid-up subscriber Perry Mecum
Regards,
Sean Goldsmith
New York, New York
April 23, 2012