We're not worried about the fiscal cliff... Doc and Dan loading up on blue chips... A big announcement from the International Energy Agency... Volkswagen abandoning German producers... Visiting Nicaragua...
The headlines today are dominated by talk of last week's selloff and the impending doom should Congress not address our so-called "fiscal cliff." The fiscal cliff is a combination of spending cuts and tax hikes due to take effect on January 1.
Mr. Market is worried the economy will suffer should the spending cuts and tax hikes go forward... But we're not so worried. We know government policy will inevitably lead to more money printing. That, in turn, will lead to higher asset prices. We're taking advantage of any selloffs to add to our favorite positions.
In this morning's issue of our daily trading service, DailyWealth Trader, co-editors Amber Lee Mason and Brian Hunt cited Dr. David "Doc" Eifrig's market outlook... And our Retirement Trader editor is as bullish as ever. (We previously covered Doc's bullish views here)…
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I see the correction as a buying opportunity. As I've shown my readers several times in the past month, the economy is slowly grinding higher. Manufacturing and service activity is picking back up. Retail sales and home prices are ticking up.
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There are some great businesses, like banking giant Wells Fargo (WFC) and medical device giant Medtronic (MDT), that are trading for extremely low prices relative to their cash flows, earnings, and yields.
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Ignore the doom and gloom forecasts and see the correction for what it is: A buying opportunity. Or for option traders, a put-selling opportunity.
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In today's Growth Stock Wire, Brian also discussed the trading opportunities he sees in the wake of last week's selloff. In particular, he likes big, cheap technology companies. Some of the best names in the business – Intel, Apple, Microsoft, etc. – are trading at ridiculously low valuations... And they have huge cash reserves. But one of Brian's favorite cheap tech stocks today is Cisco:
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Cisco, for example, has a market cap of $89 billion... but has over $30 billion in net cash (cash on hand minus debt). The company generates over $10 billion in cash per year. It's committed to paying a lot of that cash to shareholders in the form of dividends and share buybacks.
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My colleague Dan Ferris points out that Cisco is so undervalued, shares could rise 50% and still be cheap.
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If Cisco and its fellow tech giants are a good buy, you wouldn't know it from their share price action since mid-September. The big tech fund (QQQ) has fallen from $70.40 to $63.60 (a 9.7% decline). This fund is stuffed with the companies I just mentioned.
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Part of this decline is due to weakness in the broad market. Part of it is due to a large decline in Apple (which has a 17% weighting in QQQ). But after falling so far so fast, tech stocks are ready for a bounce.
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Last week, while the market was plummeting, volatility spiked. The Volatility Index (the "VIX"), which we call the market's "fear gauge," approached 20, after trading closer to 16 for the last four months.
The VIX typically moves in the inverse to stock prices… And we warned you the VIX was likely to spike in the days leading up to the election. You can reread that analysis here.
When the VIX spikes, it reflects a sharp rise in option premiums. When people get nervous about the direction of the market, they'll pay more for options that protect the value of their stock positions. That's what the VIX measures… And that's what we saw last week. With the markets in a political panic, it was a great time to sell puts... You were receiving large premiums, and stock prices were down.
Doc took advantage of the setup to sell puts on some of his favorite, super-safe companies. Retirement Trader subscribers can access the November 9 issue for full details.
But the VIX is down nearly 5.5% today to below 18. Meanwhile, lots of blue-chip stocks are still depressed. The lower VIX means option premiums are lower.
While not great news for sellers of options, S&A Short Report editor Jeff Clark is buying calls on blue-chip socks.
This morning, in his Direct Line – a special, live-update service for S&A Short Report subscribers – Jeff told readers he believes the market could take another leg down. But once it does, he will load up on call options on his favorite stocks. (He already recommended one cheap blue chip last Friday.)
Jeff shines in volatile markets... Many of our editors expect the next few months to be choppy. And considering our short-term bullish bias, readers could double or triple their money on these option trades as markets rebound.
Traders like Jeff wait all year for big, unwarranted market swings... Then, they take advantage of extreme oversold conditions... and make a fortune.
The International Energy Agency (IEA) made an announcement today at its annual World Energy Outlook conference that confirms what we've been saying in these pages all year... The U.S. shale oil and gas boom will put America at the forefront of energy production in the next decade.
The IEA said the U.S. will surpass Saudi Arabia as the world's largest oil producer by 2020... And it will maintain the title for five years.
The U.S. currently imports about 20% of its total energy needs. But that will also change in the coming decades. From the IEA announcement…
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The United States is projected to become the largest global oil producer before 2020, exceeding Saudi Arabia until the mid-2020s. At the same time, new fuel-efficiency measures in transport begin to curb US oil demand. The result is a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030.
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All of this oil and gas coming out of the shale means lower energy prices in the U.S. One of our closest contacts in the energy sector said he believes natural gas prices could go negative.
But this is a U.S. phenomenon... Other countries around the globe are paying much more than we do for gas. Take Germany, for example... It pays around three times more than the U.S. for natural gas. And that's killing manufacturing in the country.
These low energy prices will attract manufacturing businesses back to the United States...
In today's Financial Times newspaper, Ferdinand Piech, chairman of German carmaker Volkswagen, says the cheaper energy costs in the U.S. mean Volkswagen is buying parts abroad. He says cost pressures have pushed VW to source products from other countries.
Ferdinand says that because of higher energy costs in Germany, some industrial sectors like foundries or metalworking may disappear. Germany currently pays about three times more than the U.S for natural gas. Earlier this year, Germany also announced its plan to phase out nuclear power generation. The German Industry Association has warned it could mean paying up to four times more than the price of natural gas in the U.S. and result in even more price hikes for their electricity. The group says Germans could end up paying twice the price for their electricity as the U.S. pays.
Longtime readers know we've written extensively on the renaissance of the American energy sector. Porter believes it's the biggest investment opportunity of his lifetime – bigger than the Internet boom in the '90s. And we're just at the beginning. Here is what he told his readers in this month's issue of his Investment Advisory, out last Friday...
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It should come as no surprise to any reader that we're bullish on natural gas production.
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Actually... we're more than bullish. We believe America is still in the early stages of what will be the greatest increase in natural gas production the world has ever seen. Most of these increases will happen right here, in the U.S.
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Porter has been covering this over the past couple years. He's done extensive research on the various sectors that benefit from the boom in energy and has identified the best ways to invest. As he explains in this month's issue, this energy story is about "more than fueling cars." And he uncovers another company poised to reap huge rewards from the U.S energy boom. He says it's one of the most profitable large companies he's ever found in America.
We're starting to see how this energy boom affects many different sectors and different parts of the world – just like VW in Germany. If you're interested in profiting from this energy boom, you really should consider reading Porter's work. It's a trend he expects to have truly unbelievable consequences… both economic and political. Among other things, he predicts President Obama will use the wealth and power this newfound glut of energy is creating to hold onto power beyond 2016. To learn more about Porter's work and what he foresees… click here.
New 52-week highs (as of 11/9/12): None.
In today's mailbag… at least one subscriber is thinking about diversifying his assets outside the U.S. Have you tried it? Send your comments to feedback@stansberryresearch.com.
"I need out, after this election I simply cannot take it anymore. Have worked hard, saved my 'money' in the form of US paper and now cannot live under the oppression that our government wants to put on me. I am young, have substantial wealth, a family and need an escape plan. Rancho Santana is one of many that I am considering. Would be interested in learning more." – Paid-up subscriber "John Galt"
Goldsmith comment: I wrote an update on Rancho Santana in last Friday's Digest. And I'm taking a group to visit the property December 12-16.
I spoke with Marc Brown of Rancho Santana this morning... He said he's been inundated with requests from other folks who share your frustrations. If you're interested in visiting, you can still e-mail Marc to get on the list. You can reach him at marcb@ranchosantana.com.
Regards,