In yesterday's Digest Premium, I (Porter) discussed how Obama allowing the free-trade of energy would cause energy prices – and stock prices of exploration and production companies – to boom. And the domestic wealth creation would be hugely beneficial to our economy.
The entire situation boils down to this... We are producing more natural gas than we can use. Opening up our borders to export natural gas is the best solution.
However, right now, some companies are working to increase domestic natural gas demand by converting buses, long-haul trucks, and even retail automobiles to run on natural gas. But I'm skeptical about how much these efforts can buoy the larger economy.
I'm not saying companies like Westport Innovations – which make engines that burn natural gas – won't be successful. There's huge growth potential because it's coming off a tiny base. (In fact, I've recommended it to my Investment Advisory subscribers. They're up 10% in two months.)
But these solutions won't solve our economy's problem. There's a source of domestic demand that's more important... And that's industry from around the world moving to the U.S. to take advantage of low natural gas prices. I'm talking about plastics, manufacturing, telecommunications, and other energy-intensive industries.
This shift is already happening... And countless new construction projects are going on near shale fields to capture the energy and chemicals being produced. Over time, this will make a big dent in the overcapacity.
However, as long as we maintain the same kind of drilling schedule that we have been on the last two or three years, the price of natural gas is not going to change – even with tons of additional industrial uses.
That's because the gas being produced today is part of the oil drilling... It's associated gas. There's no cost to that production. So there's no reason for companies to limit that production. That's hugely negative for the future of gas prices... Unless we can find uses for natural gas that will deliver higher prices for producers.
Let me give you a specific example... Cheniere Energy is the one company that was awarded a license to build a natural gas export facility. And it can currently export to any country on the U.S. State Department's list of approved trading partners.
Brazil is on that list... Cheniere's first shipment of gas to Brazil took place last December. Brazil paid $10 per thousand cubic feet (mcf). Cheniere's cost to produce and ship that gas was less than $4 per mcf.
As you can see, there's a huge margin for the export company because of higher natural gas prices around the world. And we really need the export shackles to come off so global energy prices can converge.
We don't want to have a very low price for West Texas Intermediate (the benchmark U.S. oil price) and a very high price for Brent crude (the benchmark international oil price). Likewise, we don't want to have a low price for American liquefied natural gas (LNG) and a high price for global LNG. You want these prices to be highly correlated. That will enable the globe as a whole to grow more efficiently and Americans to become wealthier through trade.
– Porter Stansberry with Sean Goldsmith
Electronics retailer Samsung is stepping up its competitive mojo in the smartphone market. And Apple is scared. You can always tell when your competitor is scared. That's when it starts trashing you in the press...
Apple's senior vice president of worldwide marketing, Phil Schiller, criticized Android phones in an interview with the Wall Street Journal. Schiller said, "The experience [of using an Android phone] isn't as good as an iPhone."
Schiller claims four times as many iPhone users switched from Android phones as switched to Android phones in the fourth quarter of 2012.
Regardless, Android remains a highly popular choice. Android phones accounted for 70% of global smartphone shipments in 2012, versus 19% for iPhones.
Schiller's comments are conspicuously timed… coming on the eve of the release of Samsung's latest Galaxy smartphone. It's odd for a competitor to schedule an interview with a major publication on the eve of its competitor's latest product release. Tell me (Dan Ferris) if you think I'm off-base… but it smacks of desperation to me. If Apple had no doubt its product was superior, why the bluster? Why not keep mum and keep making iconic products?
It's funny, too… Schiller's shot isn't directly at Samsung. He's criticizing the operating system – which is owned by arch-rival Google. In fact, if he were to criticize Samsung, it would be more than a little awkward, since iPhones are basically Samsung phones. Samsung makes the guts of the iPhone. That's why Schiller is focused on the operating system, not the hardware. If he criticizes Samsung's hardware, he's more or less badmouthing his own product.
Apple and Samsung are like a feuding couple headed for divorce. Samsung is the sole supplier of processors at the heart of every iPhone, iPad, and iPod Touch that Apple sells.
Last October, a report in the Korea Times quoted a Samsung official saying the company is now just a manufacturer of Apple components. It's no longer involved in the architecture and design of Apple chips. This is a big deal. Samsung has been involved in the design of Apple chips since the early 2000s. In 2011, Apple accused Samsung of copying the iPhone too closely with its own products. Since then, lawsuits have been flying in both directions around the globe.
Just before the Korea Times article, Apple hired a top Samsung chip designer. Not long after the piece was published, Samsung canceled its contract to provide LCD screens for Apple devices.
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Since Samsung and Apple started feuding more aggressively last fall, speculation has been flying that World Dominating semiconductor-maker Intel will become Apple's new partner. Intel's leading-edge chip designs are at least a year ahead of the entire industry. And it's spent large amounts of money building new cutting-edge chip-making capacity. CEO Paul Otellini says Intel's plants are its single-greatest asset.
We covered the potential Apple-Intel alliance, as well as the latest developments of Intel's mobile computing and chip-making plans, in the March issue of Extreme Value.
Most investors see Intel's big spending spree of the last few years and wince. That's why the stock is so cheap. When Intel's dominant position causes its mobile and chip-making businesses to take off in the next couple years and the stock moves even higher, they'll wince at missing out on a big low-risk profit. (It's up 61% since my initial recommendation in early 2009.)
Big Tech is one of the few true bargains left in the stock market today. Intel is just one of the Big Tech opportunities we've found. There are four of them right now in the Extreme Value model portfolio. Three are in dirt-cheap, highest-conviction buying territory. And Intel isn't even the largest upside opportunity I'm seeing in the technology space today...
I won't name our newest technology recommendation here. That's for Extreme Value readers only. I can tell you it has the most explosive upside potential in the next year or two of any technology stock we've analyzed. I can also tell you the competitive pressures building between Apple, Samsung, Intel, and chip-makers Taiwan Semiconductor and Global Foundries are playing straight into the hand of this smaller company.
This company gushes free cash flow. Management is world-class. It maintains a fortress balance sheet with billions in cash and little debt. I seriously doubt you've ever heard of it... even though it has dominated its industry for more than a decade.
Dirt-cheap, unknown industry dominators are rare, but they're out there. And we know how to find them. Who ever heard of Constellation Brands in June 2011, when we covered it in Extreme Value? It's up 107%. I doubt Prestige Brands Holdings was on your radar screen in May 2009. Shares have nearly quadrupled since then. Both dominate their markets. Both are relatively unknown. Both produced safe, triple-digit returns.
If you want big upside potential with low risk, check out the back page of every issue of Extreme Value. We've got some familiar names, but we've also got a bunch of companies you've probably never heard of... They're all high-quality businesses with world-class management teams and stellar financial conditions. It's basically a list of a half-dozen safe, potential doubles (or triples). (We update them weekly, too.)
If you want access to Extreme Value's list of safe potential doubles, it ain't cheap. But I think you'll find it's worth it. And if you feel it's not for you within your first three months, we'll gladly refund your subscription, minus a small processing fee. We just want you to be happy. That's how we do everything around here. Just click here to sign up for Extreme Value (without watching a lengthy promo video).
An update on private-equity firm Blackstone Group's real-estate investments...
Blackstone has expanded its credit line to buy single-family homes to $2.1 billion from $600 million, the Bloomberg news service reports.
"The deal demonstrates that the market for these types of loans is expanding and maturing as major Wall Street banks become more and more comfortable with the asset class," Stephen Blevit, an attorney for Sidley Austin LLP who represented Deutsche Bank (the head lender in the deal), said in an e-mail to Bloomberg.
To date, Blackstone has spent $3.5 billion on 20,000 single-family homes since last year, making it the largest homeowner in the U.S.
The amount of institutional money flowing into U.S. housing is unparalleled. We told you investment bank JPMorgan was buying houses.
Public Storage founder and billionaire B. Wayne Hughes started buying houses last year as well, through his newly formed company, American Homes 4 Rent. He now owns $3 billion in housing, making him the second-largest homeowner, behind Blackstone. Hughes plans to take the company public within two months (which would raise even more capital and allow the firm to buy even more houses).
And Colony Capital, an investment firm founded by Thomas Barrack, has raised $2.2 billion to buy homes.
All this capital chasing a shrinking supply of housing is one of the reasons Steve Sjuggerud believes we'll see home prices go even higher than pre-crisis levels. It's all part of the Bernanke Asset Bubble. The Federal Reserve has pushed interest rates near zero... And central banks around the world are printing trillions of dollars worth of paper money. All this money is looking for a home. And it will soon flee the bond market and flood into equities and real estate.
A clarification: In yesterday's Digest, we miscalculated the premium of hedge-fund manager Kyle Bass' Japanese interest-rate call options. A basis point is 1/100th of a percent. So our note should have read: "So it costs him $1,000 a year to insure against losses on $10 million of credit products... In other words, if Japan crashes, he'll make $10 million for every contract." We regret the error.
New 52-week highs (as of 3/13/13): Fission Energy (FIS.V), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Insurance Fund (IAK), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra Health Care Fund (RXL), W.R. Berkley (WRB), Automatic Data Processing (ADP), Ericsson (ERIC), IBM (IBM), Chicago Bridge & Iron (CBI), Consolidated Tomoka (CTO), American Financial Group (AFG), Travelers (TRV), Alleghany (Y), Blackstone Group (BX), Kohlberg Kravis Roberts (KKR), Becton-Dickinson (BDX), Chart Industries (GTLS), Cheniere Energy (LNG), Range Resources (RRC), Two Harbors (TWO), CVS Caremark (CVS), Walgreens (WAG), Sysco (SYY), Target (TGT), GenMark Diagnostics (GNMK), and Activision Blizzard (ATVI).
In today's mailbag… more subscribers write in about Porter's Monday memo, and the view on Detroit he shared in Digest Premium… Send your comments to feedback@stansberryresearch.com.
"I just wanted to say that I was quite impressed with the thoughtful letter from 25 year-old subscriber Luke B. published in the Wednesday Digest. I was struck by the fact he is 25 and one of the examples I cite on the front page of my website is that a 25 year-old, starting with $3,000 in a Roth IRA and adding $3,000/year at a 15% annualized rate of return will have $6,941,252.20 when they reach the age of 65! I would simply like to pass on to Luke that you can truly build a mountain moving one bucket of sand at a time, if you simply stick with it long enough." – Paid-up subscriber Ken McGaha
"I have been a subscriber to several of your letters for just under a year now and am compelled to come to your defense. I have never experienced an occasion where you did not provide what you said you were providing. It's all available if you just slow down and take the time to investigate just a little.
"People are so impatient they don't take the time necessary to learn how to accomplish what they want. It simply takes just a little effort and you can find all that has been promised to you.
"The Silver Loop Hole comes up so often on your website I can't see how anyone could miss it. I have tried it and it does work. But that too takes a little effort. I am very happy with my subscriptions and am just about to calculate how I have done, even with my mistake I made along the way. At the end of the first year I was planning on doing some exact calculations but if I had to make a guess I am up somewhere around 20 percent in one year. What more could a person ask? Keep up the good work." – Paid-up subscriber David D
"Good evening from the communist outpost formerly known as Detroit!
"As you have laid out so well, Detroit is an abyss. The metro area surrounding Detroit does well, but Detroit is this black hole that sucks wealth in and wipes it out faster than it can grease the fingers of those extorting it.
"It would have been fun to mention not only Rick Snyder's appointment of a financial manager, but that yesterday, former Detroit Mayor Kwame Kilpatrick was convicted on numerous counts of extortion, fraud, racketeering, you name it. As awful as that makes all of us look... I absolutely loved hearing the verdicts being read.
"While I tend to agree with you that Detroit is dead, it was at least satisfying to see one of the thugs that took advantage of the situation put in his place. All in all, yesterday was a good day!" – Paid-up subscriber Jeff
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon, and Miami Beach, Florida
March 14, 2013