2012 Report Card Part II: The traders...

Shares of semiconductor giant Intel fell more than 6% today after the company announced disappointing earnings and told investors to expect lower earnings next quarter than analysts had been predicting...

Intel's earnings totaled $2.5 billion in the fourth quarter, down 27% from a year ago. Revenue fell 3% to $13.5 billion. The company also forecast first-quarter revenues of $12.7 billion... Analysts were expecting $12.9 billion.

Intel is facing headwinds as personal computer sales (its biggest and most-profitable market) are slowing... According to various research firms, PC sales fell between 4.9% and 6.4% in the fourth quarter from a year earlier. They're giving way to smartphones and tablets.

But these problems aren't new... Shares of Intel fell from a high of more than $29 in May to $19 in November on the same concerns.

Today, like last year, we're not worried.

Intel is one of the best and most dominant companies in the world. It has a market capitalization of more than $100 billion. It has around $15 billion of cash on its books. And it pays a 4%-plus dividend.

The company is ramping up research-and-development spending this year to better penetrate the mobile and tablet space. And it has plenty of cash (and good credit) for acquisitions.

"We see the industry in a period of transition and hyper-innovation," CEO Paul Ottelini said during the earnings announcement. "We are well-positioned to take advantage of these trends... From the lowest-powered portable devices to the most powerful data center servers."

The market is skittish about big technology companies today (consider Apple's recent action/a>)... And we can't be sure Intel won't fall farther. But we like the idea of owning World Dominators at great prices.

If you're worried about what the stock price may do over the next couple months, you have a great opportunity to sell puts today...

Consider selling the Intel (INTC) February $21 puts...

At open this morning... those options were trading for about $0.48 a share. The options expire on February 16, and selling them would require you to buy 100 shares of stock at $21 a share... if INTC is trading for less than that by expiration.

If you sell the February $21 puts, you will collect $48 per contract immediately. (Remember a contract is equal to 100 shares.) If Intel is trading above $21 by February 16, you keep the premium, free and clear.

If shares go for less than $21 on that date, you will have to buy 100 shares of Intel at $21 each... for a net cost of $20.52 (once you account for the $0.48 premium you received upfront)...

Intel has rarely traded for less than $20 over the past two years... and as you can see in the chart above... It's just now rebounding off a 52-week low.

So even if we're put the stock... $20.52 is pretty close to the best price you're likely to see on INTC in the near term.

Intel is a great example of why we only sell puts on stocks we're happy to own...

Regular Digest readers know about these kinds of stocks. These are "World Dominating" businesses like Intel, Coke, Microsoft, and Wal-Mart. They hold No. 1 positions in their markets... rake in huge amounts of cash... and often pay safe, growing dividends.

They rarely suffer substantial declines... and when they do, it's usually a temporary stumble. Those dips are almost always a great time to step in and buy them at bargain prices.

So if you sell puts after the stock has fallen... most of the time, you won't have to buy the stock. You simply keep the cash premiums. And even when the stocks trade for less than the strike price, we're happy to buy. We're buying a great business on the cheap. And in the case of Intel, we're collecting a big dividend.

Pocketing quick cash today with this technology giant...

In today's Digest Premium... we're revisiting one of the greatest trading strategies out there for generating consistent, super-safe income... And the trade we outline shows exactly why this strategy is ideal for trading big, safe "world dominating" stocks.

To continue reading, scroll down or click here.

Pocketing quick cash today with this technology giant...

As you'll recall from last week's installment of our annual Report Card, I believe it's critically important to review the actual results of our recommendations.

We're in business to help our subscribers get better investing and trading results. We know that if you're successful using our products, you'll renew. And the way our business works, we are unlikely to make a profit unless you renew. (Our marketing costs typically consume more than 100% of your initial subscription price... and that's not including any of the fulfillment expenses, which are substantial.)

The point is, our interests are aligned. I can't do well as a publisher unless you're able to do well as an investor. Of course, there's more to it than this, too... many of our friends and relatives follow the research we publish... and over the years, we have come to know and admire many of our subscribers.

We want our work to be great, just as I'm certain you strive for excellence in your endeavors. How can we continue to do excellent work if we don't routinely evaluate our efforts and attempt to learn from our mistakes? That's why we conduct these annual audits. And that's why I (Porter) do them personally.

During 2012, we published six "trading services." These newsletters are published frequently, with updates offered as necessary, that focus on short-term speculations and options. The holding period of their recommendations is much, much shorter than those of our traditional monthly newsletters.

As a result, our evaluation will focus on the annualized results. We caution you that these numbers only approximate the actual returns an investor might have achieved. However, with an average holding period of only 89 days, using merely the average gain would be a completely meaningless evaluation, as no one would leave their capital in cash for the rest of the year.

So... how did we do? Overall, I'd award our group a "C" for trading last year. Our annualized return was 10.4%, which is a reasonable return, but underperformed the stock market. Our recommendations resulted in gains slightly more than 60% of the time (124 winners out of 206 total recommended trades).

Let's start with the bad news... Our trading performance in 2012 was seriously damaged by awful results from two of our services, the S&A Short Report and the S&A Junior Resource Trader. Both products earned an "F" for 2012.

The S&A Short Report suffered losses a little more than 50% of the time and produced a negative annualized result of almost 40%. The S&A Junior Resource Trader was... unbelievably... much worse. It recommended losing trades almost 90% of the time and produced an annualized loss of more than 60%.

While I'm not happy with the performance of the S&A Short Report, I know it's not possible for Jeff Clark to "shoot the lights out" every single year. Keep in mind, last year (2011), he earned an A+, producing an annualized return of almost 200%. He's produced winning years for every year I can remember, except for 2012. Sooner or later, even the best traders hit a slump. I'm certain he'll bounce back this year. He's also one of the most competitive guys I've ever met. These poor results are probably driving him crazy.

One more factor to consider… Jeff's work in his daily Direct Line blog produced great results, which aren't counted toward his official grade. The vast majority of the super-short-term "scalp" trades he suggested were profitable. And anyone trading along with Jeff's comments could have compounded lots of small, short-term gains into a large annual return.

On the other hand, we're clearly failing in our efforts to trade in the resource sector. This is the second year in a row that the S&A Junior Resource Trader has earned an "F." It's the second year in a row that roughly 90% of its recommendations were losers. It's the second year in a row that this publication produced huge annualized losses.

Yes, I know last year wasn't great for commodity stocks in general. (The "Venture" resource stock index has been cut in half from early 2011 levels.) But a trading service ought to be nimble enough to produce results in up or down markets. Clearly we haven't come close to getting this right. I promise you one thing… we're going to fix it – immediately... or else we'll cancel it.

Before you crucify us for these terrible results... keep in mind, we did a lot of things right last year. In fact... I'd say one of our products, Retirement Trader, has amassed the best track record of any investment newsletter product, of any kind, in the history of our industry.

Dr. David Eifrig, who learned to trade while working on the derivatives desk of Goldman Sachs, made 41 recommendations last year. All but three of them were winners – a success rate of 92.7%. (And he has yet to close a single position for a loss.)

This performance is a continuation of his amazing results since the inception of this letter. His trading is truly amazing. On an annualized basis, you made 37.3% last year with "Doc" (as we call him) in Retirement Trader. Plus, as you can see, you were taking almost no risk.

I strongly recommend you read Retirement Trader… especially if you want to learn to trade for income. It is, without a doubt, our highest-quality trading service. Once again in 2012, Retirement Trader earns our very highest grade: A++. If there were something better… Doc would have earned it.

True Wealth Systems is not a normal trading service. Dr. Steve Sjuggerud collaborated with our friend Richard Smith, who runs TradeStops.com and his coterie of computer programmers to analyze market data over the last 30 years. Steve was searching for statistically reliable trends – proven market moves.

Often, the computers will catch emerging trends long before any of our other analysts would. That's what happened last year with biotech (up 55%). Unfortunately, sometimes, the markets are too volatile. Even though the ideas were right in the long run, we suffered losses (Italy, a -21.5% return) because of our stop losses. As a result, the overall performance was only acceptable. Steve and his systems produced winners 55% of the time, for an annualized gain of a little more than 7%. That's not good enough, given that the market was up so much more last year. True Wealth Systems earns a "C" for 2012.

DailyWealth Trader is a service that reviews all the recommendations we make in our research products (as well as the top ideas from some of the best investors in the business) and suggests short-term trades. It is written by our Editor in Chief Brian Hunt and Executive Editor Amber Lee Mason. Because they read all of our letters and are so familiar with all of our recommendations, it's possible for them to "cherry pick" from among our best ideas for some of their trading recommendations.

As a daily product, it makes a lot of recommendations – 85 last year. When you do that much trading, it's hard to have a good win rate. But they pulled it off, winning 62% of the time. Their annualized return was also good, at 16.8%. That just barely beat the stock market as a whole, so I can only give them a "B" for 2012.

But... I want to stress that their performance was excellent, even better than these numbers suggest. If you counted their gain against margin (against only the capital employed in the trade), then they would have made 27% annualized, which is outstanding.

If you're looking for frequent trading recommendations, based on the fundamental research we produced across all of our products, I'd strongly recommend subscribing to DailyWealth Trader. I have a lot of confidence in Amber and Brian's ability to pick winners and design good, safe, short-term trades.

Finally... there's Phase 1 Investor. This is our most expensive research product and the only letter we've never included in our lifetime package (the S&A Alliance). Phase 1 isn't a trading service... it's a letter designed to provide very in-depth, fundamental research. It focuses on finding early-stage growth companies. These recommendations are only appropriate for extremely risk-tolerant investors who want to "take a flyer" on a few small stocks each year – companies that have tremendous potential.

A good example of a typical recommendation was last year's pick of Human Genome Sciences (HGSI). The company had been struggling for many years to develop new drugs based on its pioneering work in genomics. But... editor Frank Curzio figured out a bidding war was likely to break out over the stock. He was right... and the stock soared more than 70% last year.

But the tough part of this kind of investing is, inevitably, most of the companies don't make it. Frank's win rate last year was only 35%. That was good enough to get him above breakeven on an annualized basis, with an average return of a little less than 1%. That's not a typical performance... usually this portfolio either does great... or a lot worse.

But keep in mind, these are all long-term situations that can take a while – three years or longer – to fully develop. So judging Phase 1 with an annual review is a little pointless. We're not counting a 118% return in GenMark Diagnostics, for example, a 95% return in Sandstorm Gold, and a 90% return in Florida land play Alico. All these positions were added before our "cutoff" date, in December 2011. And I can tell you this… I can't think of another product that has produced more huge, triple-digit winners. For last year, I'll give Phase 1 a "C."

In summary... it's a lot harder than it looks to make a lot of money quickly with trading. Jeff Clark is the only trader I've ever worked with who is able to do it on a regular basis... and as you can see, he stumbled last year.

If you want to get into trading or if you want to learn to be a more successful trader, I recommend starting with Retirement Trader and DailyWealth Trader. These services pursue trades that are safer. They're designed to make a small amount of money quickly. Lots of investors scoff at the notion of making 4% on a trade. "Why bother?" they ask. Well, if you can make 4%, reliably, every 60 days, you'll earn 24% by the end of the year... and that's a great result.

If you've never tried trading, I would recommend those two publications even more strongly. They have a slew of great "how-to" introductory materials and videos. Dr. David Eifrig, in particular, has produced the best guide to options trading that I've ever seen.

There are two other trading services we're publishing now... Jeff's S&A Pro Trader and my Stansberry Alpha. We just began publishing these letters in November, so I can't give them official grades.

But Jeff has already closed out of a position for a 45% gain in less than two months. In Alpha, our first recommendation, based on shares of Chicago Bridge & Iron (CBI), is up more than 100% since November. Our second trade, based on shares of MGM, is up more than 58% since December. And our third trade – based on mortgage REITs – is up more than 20% since last week.

I probably shouldn't be allowed to grade Alpha at all, since it's pretty much my baby… After trading on my own and watching lots of great traders (like Jeff Clark) in action, I've figured out what I believe is the very best way to amplify the gains we can make on our highest-conviction ideas... And we can do it while taking on less risk than we would by simply buying the common stock. In my opinion, there's nothing else like it, anywhere.

We're doing one trade per month in the service. And we're only doing one type of trade – the Alpha trade. So our subscribers won't have to learn dozens of different options strategies. They only have to learn one kind. (We share the details on how to perform this simple trade when you sign up.)

Can we keep up these outstanding results? I believe we can, but only time will tell. Tune in to next year's Report Card to see how it turns out.

New 52-week highs (as of 1/17/12): Advent Claymore Fund (AVK), Berkshire Hathaway (BRK), Guggenheim BulletShares Fund (BSJF), iShares MSCI Australia Fund (EWA), iShares Italy Fund (EWI), iShares iBoxx Fund (HYG), iShares DJ U.S. Insurance Fund (IAK), SPDR S&P Int'l Health Care Sector Fund (IRY), iShares DJ U.S. Home Construction Fund (ITB), SPDR Barclays High Yield Bond Fund (JNK), Powershares Buyback Achievers Fund (PKW), Proshares Ultra Health Care Fund (RXL), Sprott Resources (SCP.TO), Sequoia Fund (SEQUX), Proshares Ultra S&P 500 Fund (SSO), Targa Resources (TRGP), Johnson & Johnson (JNJ), RPM International (RPM), 3M (MMM), Chicago Bridge & Iron (CBI), Hershey (HSY), American Financial Group (AFG), Navigators Group (NAVG), Travelers (TRV), Blackstone Group (BX), Kohlberg Kravis Roberts (KKR), Medtronic (MDT), Southern Copper (SCCO), Union Pacific (UNP), Government Properties (GOV), Two Harbors (TWO), CVS Caremark (CVS), and Emerson Electric (EMR).

In the mailbag... an Amway supporter takes us behind the woodshed. Have you ever been involved in a multilevel marketing (MLM) company? How did it turn out? Let us know: feedback@stansberryresearch.com.

"For someone like yourself who clearly has superior business knowledge and insight, I was disappointed to see you bash a 79-year-old business model (MLM) with which you, personally, have little or no actual experience. I know that must be true because I should think that a man like you would appreciate the significance of a company, ANY company, but specifically Amway here, actually staying in business for half a century, let alone creating more revenue than the NFL, while employing more than 13,000 people, let alone operating in more than 80 countries and territories, let alone having ZERO debt and never, not once, defaulting on a single dollar of payment in 53 years of operation.

"I am a financial services business owner, former U.S. naval officer, disabled veteran, husband of 23 years, father of two daughters, long-time admirer (and paid subscriber) of your work, sir, and I am also, apparently, one those gullible masses you refer to that have been preyed upon by Amway's flawed business plan. That is, unless you consider being carefully mentored to the point of replacing our full-time work income after a few years of business-building so that we could fulfill our dream of staying home every day to raise & home school our own children evidence of a flawed plan.

"Where Amway is concerned, your two paragraphs are patently false on their face and do little more than expose your ignorance about a business you might actually find extraordinary with even a modicum of careful investigation beyond the reach of Google. I have no personal knowledge about Herbalife, but if any of what you said is true about its business practices, putting it in the same sentence with Amway is like saying that the United States is like Zimbabwe since we both practice free-enterprise and have free elections. Obviously, you have strong opinions on this subject: Mine just happen to be backed up by more than two decades of actual experience. As you have rightly stated many times, you can't teach anyone anything; one can only learn. Maybe you will learn something about this remarkable company (Amway) that causes you to think differently in the future. In the meantime, Godspeed, and keep up the outstanding work in the publishing business." – Paid up subscriber Scott A.

Porter comment: We received lots of similar notes from other successful Amway and Herbalife distributors.

I stand behind what I wrote…

But understand... I'm no world-improver. I wasn't trying to change anyone's mind about these companies, which have a firm legal basis for their operations. I was merely explaining why I wouldn't want to be an owner of these companies. In short, I don't find the MLM approach very credible.

Yes, lots of people have made money with these companies. And no, it's not impossible to succeed. On the other hand, like I said, it is very unlikely. From the research I've seen, about 3% of the distributors make essentially all of the money. That's not because business is bad... that's how the business is designed. If that's OK with you, you're the guy they're looking for. But it's not for me.

Regards,

Porter Stansberry

Miami Beach, Florida

January 18, 2013

Pocketing quick cash today with this technology giant...

In today's Digest Premium... we're revisiting one of the greatest trading strategies out there for generating consistent, super-safe income... And the trade we outline shows exactly why this strategy is ideal for trading big, safe "world dominating" stocks.

To subscribe to Digest Premium and access today's analysis, click here.

2012 Report Card Part II: The traders…