Amazon's earnings disappoint...

Amazon's earnings disappoint... 'Market darling' stocks begin to falter... One 'boring' business keeps chugging along... True Wealth Systems computers: It's time to buy into this sector...
 

 In the April 11 Digest, Porter explained the idea behind his Stansberry's Investment Advisory Black List – an index of companies with a market cap of more than $10 billion trading for more than 10 times sales.

 

The Black List isn't a list of short-selling targets... It's just an indicator of frothiness in the markets. And things were frothy in April... Plus, the market was turning over. As Porter wrote...

 In the January 10 Digest, Porter noted another overvalued market darling: Internet retailer Amazon (AMZN)...

 

No business in history has ever deserved to be worth this much... and certainly not an Internet retailer. Retailing is an absurdly tough business. It's akin to business suicide. Amazon – the most dominant Internet retailer in the world by a huge margin – produces a return on equity of only 1.5%. And yet investors are paying 20 times book value (today) to own this stock. I doubt those investors are going to do well over the long term...

 

 Last week, Amazon reported disappointing earnings. Shares fell more than 8% on Friday after the company's revenue and earnings numbers fell short of analyst estimates. Plus, its venture into smartphones was a failure, with phones accounting for $170 million of the company's $437 million loss in the third quarter.

 

At the time of Porter's warning, Amazon traded for around $400 a share. Today, it trades around $290... a near-30% loss.

 

 

 Another market darling falling in the market lately is mobile-camera maker GoPro (GPRO). Shares are down more than 25% in the last three weeks... though they were up more than 8% as of midday trading today. We explained our skepticism in the June 30 Digest...

 

It still looks like GoPro is selling small cameras that would be easy to replicate. There's no barrier to entry. Any large technology company with billions of dollars in the bank could easily build a similar product. In fact, Panasonic launched a competing product, the HX-A500, earlier this year.

 

GoPro reports earnings on Thursday. And while it might be a fashionable stock to own right now, we don't advise investing over the long term in a company trading close to eight times sales and 107 times earnings before interest, taxes, depreciation, and amortization (EBITDA).

 

 Social-media stock Twitter (TWTR) announced third-quarter results yesterday... and it wasn't pretty. User growth is slowing and losses are increasing.

 

Active users fell 4% from the second quarter to the third quarter of 2014. The company reported net losses of $175 million for the third quarter, versus net losses of $65 million in the same period last year.

 

Twitter continues to struggle to monetize its service. Porter commented on Twitter's business model in the June 25 Digest Premium...

 

It's hard for me to imagine how Twitter actually has a business model. Users post free messages to the Internet. I don't know how you're ever going to monetize that. I think you could make the case that Twitter's business model is already obsolete, even though people don't realize it yet.

 

Today, Twitter is trading at more than 30 times sales and a forward price-to-earnings ratio of 113 times. Shares are down nearly 20% in the last three weeks alone, including a 10%-plus drop as of midday trading today...

 

 

 While the momentum trade is deflating, one of our favorite stocks in one of our favorite industries keeps marching higher...

 

In the October 22 Digest, we told you about Porter's favorite business: insurance. In particular, we discussed how these companies collect premiums before paying out claims. Then they invest those premiums, or "float," to leverage their investments and boost their returns. As long as they maintain strict underwriting standards, they likely won't end up paying out more in claims than they collected in premiums.

 

 W.R. Berkley (WRB) is one of Porter's favorite insurance stocks. The company reported impressive third-quarter earnings last week. It beat analyst estimates for the fifth straight quarter, increasing its return on equity from 12.7% in the third quarter of 2013 to 17.4% today. It also raised its book value per share 13% compared with the end of 2013, according to research firm Zacks.

 

But perhaps the most positive piece of earnings news was that W.R. Berkley's combined ratio – which measures underwriting discipline – improved to 93.5%. A combined ratio of less than 100 means you are generating underwriting profits. Plus, as Porter explained in the June 18 Digest, it's still experiencing a negative cost of capital...

 

In every other business, companies must pay for capital. They borrow through loans. They raise equity (and must pay dividends). They pay depositors. Everywhere else you look, in every other sector, in every other type of business, the cost of capital is one of the primary business considerations. Often, it's the dominant consideration. But a well-run insurance company will routinely not only get all the capital it needs for free, it will actually be paid to accept it.

 

Porter's subscribers are up 47% on W.R. Berkley since March 2012. He holds six blue-chip insurance stocks in his Investment Advisory portfolio. They're up an average of 37%.

 

 One of the most lucrative sectors in the market is triggering "buy" signals in Steve Sjuggerud's True Wealth Systems newsletter. As regular Digest readers know, Steve says that "if you catch one biotech bull market, you may never have to work again... "

 

Steve thinks we're in the start of a biotech bull market today. He updated readers on the trade in today's DailyWealth...

 

We bought biotech stocks in my True Wealth Systems letter in January 2012. At the time, we were coming out of the 2011 stock market correction. Folks weren't interested in anything risky. So no one was paying attention... But biotech stocks started a "stealth" bull market. The trade turned into a 56% gain in just 10 months...   A month later, biotech moved back to a "buy." And even after our big gain, biotech stocks were still cheap and hated.   Most investors would be scared to buy back into a trade a month after locking in a 56% gain in 10 months. But based on history, we saw a huge opportunity and we got back in. We closed our second biotech trade in April 2014... locking in a 184% gain in just 16 months.   Both trades combined led to a 343% gain... enough to turn $10,000 into more than $44,000 in a little more than two years.

 

 Steve says biotech stocks offer good value today... And they're not popular yet. Plus, they're in a strong uptrend. Based on Steve's historical studies, now is the time to buy.

 

We're offering a generous discount on True Wealth Systems... but only until tomorrow at midnight. To learn more about Steve's proprietary trading system – and how to gain access to his latest biotech recommendation – click here.

 

 

 New 52-week highs (as of 10/27/14): ProShares Ultra Nasdaq Biotechnology Fund (BIB), Brookfield Property (BPY), Chubb (CB), CVS Health (CVS), Leggett & Platt (LEG), 3M (MMM), Altria (MO), Procter & Gamble (PG), ProShares Ultra Health Care Fund (RXL), Travelers (TRV), and Union Pacific (UNP).

 

 Is your portfolio loaded with safe, blue-chip stocks... or highly valued market darlings like Amazon, GoPro, and Twitter? How are you holding up through the recent market ups and downs? Let us know at feedback@stansberryresearch.com.

 

 "You consistently say do not enter your stops into the market. If I have an account such as TD Ameritrade how would entering in the stops be advantageous to a broker I never have any contact with or what can he do with the info?" – Paid-up subscriber David Schulte

 

Goldsmith comment: When you enter a stop with your broker, he places it in the market. At that point, market makers who match buyers with sellers know exactly where you're willing to sell. If an order to buy comes in well below market, the market maker can temporarily drop the price, pick off your stop, and the price will then immediately rebound. The price will only fall to your stop because the market maker knows where you're planning to sell. If you don't put stops in the market, that can't happen.

 

 "Where do I find the list of stocks on the Black List? It is not in the monthly newsletter and I can't find it under special reports. Thanks." – Paid-up subscriber Murray

 

Goldsmith comment: We stopped publishing the names on the Black List regularly because many people were treating it as a list of short-sale candidates, which was not its intended purpose. The individual names were not meant to be significant... We only wanted subscribers to pay attention to the overall number, which this month was 23. As Porter wrote in this month's Investment Advisory...

 

The number on our Black List slides a little off the September highs of 29 down to 23 names on the list this month. While it has declined, keep in mind that we think 10-15 names on the list is a sign that the market may be getting a little expensive. So with 23 names on our SIA Black List, the reading is still bearish.

 

Regards,

 

Bill McGilton

Baltimore, Maryland

October 28, 2014

 

Shares of this European blue chip just went 'on sale'...
 

 In the April 11 Digest, Porter explained the idea behind his Stansberry's Investment Advisory Black List – an index of companies with a market cap of more than $10 billion trading for more than 10 times sales.

 

The Black List isn't a list of short-selling targets... It's just an indicator of frothiness in the markets. And things were frothy in April... Plus, the market was turning over. As Porter wrote...

"If these stocks continue to fall, we'll likely see a major correction in stock prices across the broader market, too. The individual stocks in this index are: social-media firms Facebook, Twitter, LinkedIn, and TripAdvisor; credit-card companies Visa and MasterCard; biotech firms Biogen, Illumina, and Vertex; Chinese Internet companies Baidu and Qihoo 360; pharmaceutical firms Regeneron and Alexion; REITs Public Storage, Prologis, and Avalon Bay; electric-car maker Tesla; cloud-computing firm Workday; pipeline companies Spectra Energy, Cheniere Energy, and Western Gas; and real-estate firm American Realty."
 

 In the January 10 Digest, Porter noted another overvalued market darling: Internet retailer Amazon (AMZN)...

 

No business in history has ever deserved to be worth this much... and certainly not an Internet retailer. Retailing is an absurdly tough business. It's akin to business suicide. Amazon – the most dominant Internet retailer in the world by a huge margin – produces a return on equity of only 1.5%. And yet investors are paying 20 times book value (today) to own this stock. I doubt those investors are going to do well over the long term...

 

 Last week, Amazon reported disappointing earnings. Shares fell more than 8% on Friday after the company's revenue and earnings numbers fell short of analyst estimates. Plus, its venture into smartphones was a failure, with phones accounting for $170 million of the company's $437 million loss in the third quarter.

 

At the time of Porter's warning, Amazon traded for around $400 a share. Today, it trades around $290... a near-30% loss.

 

 

 Another market darling falling in the market lately is mobile-camera maker GoPro (GPRO). Shares are down more than 25% in the last three weeks... though they were up more than 8% as of midday trading today. We explained our skepticism in the June 30 Digest...

 

It still looks like GoPro is selling small cameras that would be easy to replicate. There's no barrier to entry. Any large technology company with billions of dollars in the bank could easily build a similar product. In fact, Panasonic launched a competing product, the HX-A500, earlier this year.

 

GoPro reports earnings on Thursday. And while it might be a fashionable stock to own right now, we don't advise investing over the long term in a company trading close to eight times sales and 107 times earnings before interest, taxes, depreciation, and amortization (EBITDA).

 

 Social-media stock Twitter (TWTR) announced third-quarter results yesterday... and it wasn't pretty. User growth is slowing and losses are increasing.

 

Active users fell 4% from the second quarter to the third quarter of 2014. The company reported net losses of $175 million for the third quarter, versus net losses of $65 million in the same period last year.

 

Twitter continues to struggle to monetize its service. Porter commented on Twitter's business model in the June 25 Digest Premium...

 

It's hard for me to imagine how Twitter actually has a business model. Users post free messages to the Internet. I don't know how you're ever going to monetize that. I think you could make the case that Twitter's business model is already obsolete, even though people don't realize it yet.

 

Today, Twitter is trading at more than 30 times sales and a forward price-to-earnings ratio of 113 times. Shares are down nearly 20% in the last three weeks alone, including a 10%-plus drop as of midday trading today...

 

 

 While the momentum trade is deflating, one of our favorite stocks in one of our favorite industries keeps marching higher...

 

In the October 22 Digest, we told you about Porter's favorite business: insurance. In particular, we discussed how these companies collect premiums before paying out claims. Then they invest those premiums, or "float," to leverage their investments and boost their returns. As long as they maintain strict underwriting standards, they likely won't end up paying out more in claims than they collected in premiums.

 

 W.R. Berkley (WRB) is one of Porter's favorite insurance stocks. The company reported impressive third-quarter earnings last week. It beat analyst estimates for the fifth straight quarter, increasing its return on equity from 12.7% in the third quarter of 2013 to 17.4% today. It also raised its book value per share 13% compared with the end of 2013, according to research firm Zacks.

 

But perhaps the most positive piece of earnings news was that W.R. Berkley's combined ratio – which measures underwriting discipline – improved to 93.5%. A combined ratio of less than 100 means you are generating underwriting profits. Plus, as Porter explained in the June 18 Digest, it's still experiencing a negative cost of capital...

 

In every other business, companies must pay for capital. They borrow through loans. They raise equity (and must pay dividends). They pay depositors. Everywhere else you look, in every other sector, in every other type of business, the cost of capital is one of the primary business considerations. Often, it's the dominant consideration. But a well-run insurance company will routinely not only get all the capital it needs for free, it will actually be paid to accept it.

 

Porter's subscribers are up 47% on W.R. Berkley since March 2012. He holds six blue-chip insurance stocks in his Investment Advisory portfolio. They're up an average of 37%.

 

 One of the most lucrative sectors in the market is triggering "buy" signals in Steve Sjuggerud's True Wealth Systems newsletter. As regular Digest readers know, Steve says that "if you catch one biotech bull market, you may never have to work again... "

 

Steve thinks we're in the start of a biotech bull market today. He updated readers on the trade in today's DailyWealth...

 

We bought biotech stocks in my True Wealth Systems letter in January 2012. At the time, we were coming out of the 2011 stock market correction. Folks weren't interested in anything risky. So no one was paying attention... But biotech stocks started a "stealth" bull market. The trade turned into a 56% gain in just 10 months...   A month later, biotech moved back to a "buy." And even after our big gain, biotech stocks were still cheap and hated.   Most investors would be scared to buy back into a trade a month after locking in a 56% gain in 10 months. But based on history, we saw a huge opportunity and we got back in. We closed our second biotech trade in April 2014... locking in a 184% gain in just 16 months.   Both trades combined led to a 343% gain... enough to turn $10,000 into more than $44,000 in a little more than two years.

 

 Steve says biotech stocks offer good value today... And they're not popular yet. Plus, they're in a strong uptrend. Based on Steve's historical studies, now is the time to buy.

 

We're offering a generous discount on True Wealth Systems... but only until tomorrow at midnight. To learn more about Steve's proprietary trading system – and how to gain access to his latest biotech recommendation – click here.

 

 

 New 52-week highs (as of 10/27/14): ProShares Ultra Nasdaq Biotechnology Fund (BIB), Brookfield Property (BPY), Chubb (CB), CVS Health (CVS), Leggett & Platt (LEG), 3M (MMM), Altria (MO), Procter & Gamble (PG), ProShares Ultra Health Care Fund (RXL), Travelers (TRV), and Union Pacific (UNP).

 

 Is your portfolio loaded with safe, blue-chip stocks... or highly valued market darlings like Amazon, GoPro, and Twitter? How are you holding up through the recent market ups and downs? Let us know at feedback@stansberryresearch.com.

 

 "You consistently say do not enter your stops into the market. If I have an account such as TD Ameritrade how would entering in the stops be advantageous to a broker I never have any contact with or what can he do with the info?" – Paid-up subscriber David Schulte

 

Goldsmith comment: When you enter a stop with your broker, he places it in the market. At that point, market makers who match buyers with sellers know exactly where you're willing to sell. If an order to buy comes in well below market, the market maker can temporarily drop the price, pick off your stop, and the price will then immediately rebound. The price will only fall to your stop because the market maker knows where you're planning to sell. If you don't put stops in the market, that can't happen.

 

 "Where do I find the list of stocks on the Black List? It is not in the monthly newsletter and I can't find it under special reports. Thanks." – Paid-up subscriber Murray

 

Goldsmith comment: We stopped publishing the names on the Black List regularly because many people were treating it as a list of short-sale candidates, which was not its intended purpose. The individual names were not meant to be significant... We only wanted subscribers to pay attention to the overall number, which this month was 23. As Porter wrote in this month's Investment Advisory...

 

The number on our Black List slides a little off the September highs of 29 down to 23 names on the list this month. While it has declined, keep in mind that we think 10-15 names on the list is a sign that the market may be getting a little expensive. So with 23 names on our SIA Black List, the reading is still bearish.

 

Regards,

 

Bill McGilton

Baltimore, Maryland

October 28, 2014

 

Editor's note: Yesterday, Brett Aitken discussed the various reasons why he's bullish on European stocks going forward. In today's Digest Premium, he explains why a certain Stansberry International holding should be part of your portfolio today...

 

 

 The European Central Bank (ECB) just announced results from the long-awaited asset quality review and stress tests, which determined which banks could survive an economic shock. Many investors will likely be surprised with the results... but we aren't.

 

Despite Europe's problems, banks under the Single Supervisory Mechanism – the new European currency union banking regulator – have raised more than €200 billion since July 2013, according to the ECB. Banks that cut costs and offloaded bad debt have returned (or will soon return) to profitability.

 

 In January, we at Stansberry International pointed out that a bottom appeared to be forming in Spanish housing. Major banks were offloading some of their non-performing assets and bad debts. The Spanish economy was slowly starting to get better.

 

We recommended Spanish bank Banco Santander, which sat atop our list across a number of criteria we analyzed. It is a national flagship that had increased its capital ratios and reduced its loan-to-deposit ratio. It has global operations and we were starting to see the Spanish economy improve. In the April 4 Digest Premium, we explained that Santander's now-late CEO Emilio Botín had declared the country's economic recovery a "fact."

 

We wrote that Botín expected Spain to be among the most positive stories in Santander's results over the next three years. He forecasted that its Spanish business would make €3 billion in profits in 2016. Spain contributed a mere €478 million last year, according to data compiled by Bloomberg.

 

 The Botíns own about 2% of the bank and have been involved in running it since around 1895. Emilio Botín joined the bank in the 1950s, became CEO in 1964, and turned it into a global banking giant. When he died suddenly last month, the board met immediately, and announced that his daughter Ana would step in as Chairman.

 

Ana joined the bank in 1988 and led its acquisitions in Latin America during the 1990s, ran its Spanish retail division Banesto, then became CEO for its U.K. division in 2010. The British division has been fundamental in returning the bank to earnings growth as the local Spanish market continues its economic recovery.

 

 Santander's first-quarter profits rose 8% versus the same period in 2013. Second-quarter profits rose almost 40%. Since 2007, it has increased its common equity by €20 billion. Profits and its return on equity aren't yet back to 2007 levels, when Santander recorded its most profitable year ever... But the uptrend is returning. And it has substantially raised its equity levels, which has made it safer and more stable.

 

When investors start seeing fewer non-performing loans and higher returns on investment, they will start piling into the stock. Santander also yields a huge 8% today. We prefer to buy bank stocks at a discount to book value... But you can buy shares of a national flagship bank growing its earnings – that just aced the ECB stress tests – for a small premium to book value. That makes for a good investment... and an opportunity that won't last long.

 

At Stansberry International, we believe in investing for the long haul. It's not always easy in markets coming out of a crisis. You see far more volatility, and it takes time before investors return to these markets. But experience tells us that these are the best places for greater returns. We're not saying to bet the farm on these sectors or even on Santander. But we believe Santander shares deserve to be part of your portfolio today. Consider using the recent pullback in stocks as a buying opportunity.

 

– Brett Aitken

 

 

Editor's note: In the October issue of Stansberry International – out last week – Porter and Brett added shares of a household name to the portfolio. This company is trading at a good price and yields 2% today. Plus, if things get "less bad" in Europe, shares could move higher quickly. You can gain access to this name with a four-month, risk-free trial subscription to Stansberry International. Click here to learn more.

Shares of this European blue chip just went 'on sale'...

 

Yesterday, Brett Aitken discussed the various reasons why he's bullish on European stocks going forward.

 

In today's Digest Premium, he explains why a certain Stansberry International holding should be part of your portfolio today...

 

To continue reading, scroll down or click here.