A few minutes on the radio...
A few minutes on the radio... Did you get a 10.5% raise last year?... 99% of all investors should own these stocks... Safer than government bonds... Who's making money today? These guys are!... The details on Curzio's best current junior gold stock recommendation…
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In today's Digest, I'm going to dispense with the usual digesting of the headlines and focus on a topic that I'm admittedly becoming more and more obsessed with: investing in the highest-quality, most profitable businesses in the world. The more I think, read, and write about this, the more I believe it is the antidote to the losses most investors take on their stock market activities...
I get more and more interested in this idea because my job is to show my readers how to become richer. And this is the ultimate way to get rich in stocks. Nothing else comes close. That's why you hear about it so often. If you've taken my recommendation to buy these stocks, buy some more. If you haven't yet, you need to right now. Stop losing money in stocks with second-tier speculations. Start growing rich with the best.
I spent a few minutes on the phone the other day with Dan Cofall, host of the Wall Street Shuffle radio show. He asked me about four great businesses, including Microsoft and two other World Dominating Dividend Growers (WDDGs). All the companies we talked about gush cash profits and grow their dividends year after year, some for decades on end.
At the end of the interview, Cofall asked me what I think the best investment strategy is. I told him the best investment strategy for 99% of people is to buy the best businesses when they get cheap enough and reinvest the dividends.
I just checked this morning, and the WDDGs in my 12% Letter model portfolio have increased dividends by 10.5% on average over the past year. Did your job, your investments, or any part of your financial life give you a 10.5% raise last year? If not, you should pay more attention to WDDG stocks…. The odds are excellent they'll give investors another raise of 10% or so this year.
The longer I do this job, the simpler it seems to get. Easy? No. But simple, yes. When my research partner, Mike Barrett, and I look for new investment recommendations these days, the first thing I always want to know is, "Is this a consistently profitable business?" Then we ask other questions like, "How are shareholders going to make money on this?" These are simple, basic questions that can make the difference between losing 50% and getting a safe, predictable raise of about 10.5% or so every year.
When you think about it, there's no way you can call buying shares of an unprofitable business an investment at all. It's nothing but a gamble. Making money in the stock market is about getting more cash out of an investment than you put into it. If the business you're investing in doesn't generate lots of extra cash profits... how in the world are you going to make any money on it? Ask yourself that question before you buy any stock… and you'll be buying a lot fewer stocks, taking a lot less risk, and making a lot more money.
When I talk to the average investor, he's always trying to figure out which way the market will go... or maybe guess the direction of some stock price or index. When I talk to rich folks, they want to know about business. They want to know how a company is making money, whether it has a durable competitive advantage, how consistently profitable it is, and how much extra cash it can be expected to throw off. That's what you should ask. And if you do, it won't be long before you realize something...
WDDG stocks are the all-time best at throwing off cash. Over the last four quarters, as a group, the 11 WDDGs in my 12% Letter model portfolio generated just shy of $95 billion in free cash flow. Go try to find 11 other companies you can say that about. It ain't easy. That combined free cash flow figure would be enough to buy any of 90% of the companies listed on the S&P 500. That's a lot of buying power concentrated in fewer than a dozen businesses.
It would take these 11 companies less than six years to generate enough free cash flow to buy any company in the S&P 500 (at today's market caps).
If you want to know who in this crazy, mixed up world is making any money, this is your answer: the WDDG companies.
They're making so much money, they don't know what to do with it all. Some WDDGs have tens of billions of dollars in cash just sitting on their balance sheets. A couple of our WDDGS have so much cash, the interest they earn (at today's low rates, no less) covers all the payments owed on billions of dollars of debt.
If you want a safe stock, you need to check these out. The government is rapidly approaching a day when it can't pay the interest on its debt. The WDDGs will never see such a day. They're many times safer than investing in the government, as crazy as that might sound. But think about it. Why on Earth would anyone do something as crazy as trusting his hard-earned money to the government when he could buy stock in WDDGs? I don't know...
And the really great thing is, most of that cash they're gushing every year won't be spent paying interest or buying other companies. And none of it will be spent on capital projects because free cash flow is net of capital spending. No... just about every penny of that $95 billion will be put in shareholders' pockets. It'll be spent paying dividends and repurchasing shares.
You can't say that about the overwhelming majority of the world's public companies. WDDGs are special. They're safer. They're more consistently profitable. They're just plain better. And the really incredible part is that everybody knows it!
These businesses are profitable every quarter of every year. They grow their revenues just about every year. But even if a WDDG has a down year during a recession, it's just a great opportunity to buy it while it's cheap.
Compared with trying to uncover a gem among all the little-known, out-of-the-way stocks out there… it's relatively easy to spot a dominant business that simply refuses to stop growing, gushing huge amounts of cash profits every year, and showering shareholders with larger and larger amounts of cash dividends every single year. Some of these companies have raised their dividends every year for 40 years in a row… or more.
I don't know why more people don't buy WDDG stocks, reinvest the dividends, and forget about them for years on end. It's so simple. It's the simplest and – for 99% of the people who'll read this – the best way to invest in the stock market.
Our newest WDDG recommendation is still trading for less than our maximum buy price. It's the No. 1 company in its industry (just like every other WDDG). It crushes the competition year after year (just like other WDDGS). It has grown its market share every year since the 1970s. And it has raised its dividend every year for 36 years in a row.
I reported on this company in the May 2012 issue of The 12% Letter. A former industry insider told us he expected it to dominate the industry for years to come. And it's still trading for less than our maximum buy price.
The 12% Letter is the only place where we cover WDDGs. With every monthly issue, we publish our updated list that shows which ones are currently selling for less than our maximum buy prices.
The 12% Letter only costs $39 a year. We made it that cheap on purpose because we're trying to reach as many people as possible with this important message. Still, if you fork over $39 and decide The 12% Letter is not for you, let us know in the first four months and we'll refund all your money. We want you to be happy. That's the only way we'll do business.
If you want to see what WDDG-investing is all about, check out The 12% Letter. I bet if you had known about it starting in 2008, you'd be much happier today. If you think the next several years will be difficult, you're probably going to be a lot happier with 12% Letter recommendations than with most others. Click here to get The 12% Letter (without watching a long promotional video). I bet you'll be glad you did.
Have you had enough of my table-pounding about WDDG stocks? Please write in and tell us what you'd rather hear me talk about.
BUT… there's one condition… only write in if the business you want to hear about is at least as consistently profitable as WDDGs… raises dividends every year like clockwork for decades on end… and has as safe a financial condition as WDDGs do. Go ahead. Make my day. Tell me about a business that makes more profit per dollar of capital invested than Microsoft. Tell me about a better, more valuable brand name than Coca-Cola. Send your nominees to feedback@stansberryresearch.com. (Of course, if you have a WDDG success story, we'd love to hear that too.)
So if you find me annoying lately, it's true... I'm on a mission. I'm trying to make better, richer, more risk-averse investors out of thousands of people. So yes, I might get a little strident once in a while. But with all the stocks I could pick and the many topics I could make a lot more money pushing… you should ask yourself why I've picked WDDGs to practically stake my entire career on. Food for thought...
We've mentioned Frank Curzio's latest junior gold stock recommendation several times in the Digest over the last few weeks... Frank, who writes our exclusive Phase 1 Investor service, believes this stock is a prime candidate to be bought out by a major gold producer... and when that happens, the junior's share price could double virtually overnight.
Frank has prepared a report (titled "The Next Big Gold Takeover") on this opportunity. To access it, you must be a Phase 1 subscriber... And right now, we're offering Frank's service at a substantial discount. But you have to sign up by midnight tonight to get the price break and access to Frank's report on the potential takeover. If you missed our previous e-mail detailing the offer, we're sending one more this evening. You can also read more about the offer right now (without watching a video) by clicking here.
In today's mailbag... one subscriber wants to hear more about inflation and money printing. You don't need to ask us twice. Any other requests? Send them to feedback@stansberryresearch.com.
New 52-week highs (as of 6/20/2012): Wal-Mart (WMT), Hatteras Financial (HTS), Hershey (HSY), Alico Inc (ALCO), and iShares Nasdaq Biotech Index Fund (IBB).
"I am hoping in one of your S&A Digests you could talk more about money printing.
"I understand that the solution at this point with America, Europe and pretty much all other countries is to print money… i.e. we have too much debt and no cash to pay it back so lets just turn the printing press on create more paper money which will pay for our debts, increasing our debts and we can just keep doing that.
"Based on this idea there really is no end in sight to how much debt America can take on as long as it keeps printing money to solve problems.
"What I don't understand is when is the end point. At what point in our lifetime will printing money be absolutely no option because it is unsustainable? Or is it that governments will always continue to print money as inflation will continue to rise and the smart man will hedge that with buying hard assets like gold. Will there be a point in time where governments can not physically print money?" – Paid-up subscriber A.J.
Ferris comment: I think an "end point" is inevitable, but not necessarily imminent. I don't believe there will ever come a time when governments will not be able to print money. But every government that prints money eventually blows up the currency. Yes, there's always an end point. You just don't get to know exactly when it arrives.
So as you imply, the best you can do is hedge. Make sure you own plenty of gold and silver. Some government somewhere will always be able to print some amount of money for the same reason most people will continue to lose money in the stock market. Human nature isn't going to change. People will always try to get away with as much as they can. They'll always get into trouble with debts, and they'll always print money when and if they can.
"I am a paid up subscriber to The 12% Letter written by Dan Ferris. Does Dan have a list of buy prices for his world dominators. I specifically would like to know if McDonald's at 88 is a buy." – Paid-up subscriber E.P.
Ferris comment: As we regularly remind subscribers… the federal government prohibits us from offering individual advice… However, I publish the WDDG buy list (including buy-up-to limits) in every issue of The 12% Letter. You can find it at the top of the last page of every issue. (And you can always find the most recent issue on our website.) And of course, The 12% Letter is the only publication at S&A that keeps a list of our World Dominating Dividend Grower stocks.
"I've run CNG on my diesel truck. Works great, more power, better smelling, much much higher MPGs.
"Its funny how those who were promoting hybrid vehicles neglected to tell the consumers how many years it would take to recoup the added cost of a hybrid over a regular gas burning car, but that's the first thing they point out when comparing the costs of a CNG vehicle. CNG is the way to go. You can fuel at home, oil changes last twice as long. And if you're really environmentally conscious, it makes you sleep better at night.
"PS I'm 25 and find your newsletters to be AWESOME. Keep it up!" – Paid-up subscriber A.D.
Regards,
Dan Ferris
Medford, Oregon
June 21, 2012