Anyone looking for new stocks to buy should check out Berkshire Hathaway's portfolio. It seems Berkshire's new investment managers – Todd Combs and Ted Weschler – have been busy.
In a Securities and Exchange Commission filing dated November 14, Berkshire disclosed several investments too small to bear Buffett's massive footprint, some of which were added recently. As Buffett told Bloomberg back in July, the new guys' investments will generally be for less than $1 billion.
One new position is a $340 million stake in Deere & Co., the global leader in tractors, mowers, and other farming equipment. Another new stock in the Berkshire portfolio this quarter is Portland, Oregon-based Precision Castparts, maker of forged metal parts for aircraft, medical prostheses, pumps, and compressors.
Earlier in the year, one of Buffett's two new investors bought 10 million shares of automaker General Motors. And Berkshire added a brand-new stake in vehicle parts manufacturer WABCO Holdings.
But the core of Berkshire Hathaway's business has always been insurance. It uses the immense amount of cash it generates from its insurance businesses (like GEICO) to fund its other purchases. We're bullish on insurance stocks right now, Berkshire Hathaway included.
Porter and his team dedicated more than half of the October issue of Stansberry's Investment Advisory to insurance companies. Readers got a terrific education on the sector.
And instead of recommending a single stock or two, Porter and his team decided it would be more valuable to show readers some of their proprietary work on the entire sector. Their indicators identify the best underwriters and those trading at the best prices. Here's what Porter told readers...
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[I]n the last 20 years... our top-quality insurance stocks have never traded at this great a discount. |
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Financial stocks of all stripes have taken a beating since the financial crisis of 2008/2009. As the financial stocks and the insurance sector recover, we'd expect these top-shelf insurance firms to perform well. That means... you might not have an opportunity this good in insurance stocks again for another 20 years... maybe ever. |
In last Friday's Digest, we ran an excerpt from the issue. Here's a taste of why Porter calls it the "best business in the world"... and why your safe money ought to be in insurance stocks...
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Insurance is the only business in the world that routinely enjoys a positive cost of capital. In every other business, companies must pay for capital. They borrow through loans. They raise equity (and most 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. |
Porter told readers to buy W.R. Berkley in the March issue. The stock hit a new high Friday when shares closed at $40.06 a share. (It ebbed a bit on Monday.)
Subscribers who followed Porter's original recommendation are still up 12%... In March, he said he had no doubt the stock would vastly outperform the S&P 500 and inflation over the next five years (or more).
Porter reiterated that opinion in October and said he feels the same about the slate of five new stocks he introduced in that issue. He even added a section to the Investment Advisory model portfolio dedicated to insurance stocks, called "The World's Best Businesses."
In the November 9 Digest, we outlined our thoughts on the country's biggest mortgage real estate investment trust (REIT), Annaly Capital Management.
The company's interest rate spread – the difference between the rates Annaly pays to borrow money and the rates it receives from its investments – is falling... So Annaly isn't making as much money as it was. And it can't afford to maintain its current 14% dividend. We believe the company will lower its dividend to 8%-10%.
Still, we said the yield you would receive holding Annaly is much higher than most other alternatives. Plus, the company is trading for less than book value (a good "buy" indicator). And Annaly is safe... Its portfolio of mortgages is 100% government-guaranteed.
We weren't the only ones who thought Annaly was a good deal at today's prices... The company's president, Kevin Keyes, just bought $1.4 million in stock.
Steve Sjuggerud, who has been following mortgage REITs for years, said he's not worried about a falling dividend, either. In his latest issue of True Wealth, he wrote...
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I am not so concerned... Even with dividend cuts, these stocks still pay more interest than you can earn anywhere else. Meanwhile, Annaly is selling at a 15% discount to book value – the cheapest it's been since the 1990s. Book value in virtual banks is usually pretty close to liquidation value. |
India, the world's largest gold buyer, will buy even more of the precious metal this year than was previously estimated...
The World Gold Council, an industry trade group, said gold demand in India should rise as much as 23% from its previous estimates. It based its new outlook on the strength of purchases during the festive season (the busiest time for gold purchases) and signs of economic growth in the country.
And the increased buying comes in the face of record local prices of $585.50 per 10 grams (or around $1,660 an ounce).
Indian demand should hit 800 metric tons this year, up from a previous estimate of 650-750 tons, said Amresh Acharya, director of investment at the World Gold Council's India office.
But we think China's gold purchases could dwarf those of India... China's government gold holdings amount to only 1.6% of the country's total foreign reserves. That compares to more than 70% of reserves for the U.S., Germany, and France.
And according to the Wall Street Journal, China's central bank – the People's Bank of China – is looking to secure future gold supplies for its reserves.
China has been buying stakes in foreign mining companies like Australia's Sovereign Gold and Norton Gold Fields. The country is looking for a way to diversify itself out of U.S. dollars... And it's doing that with gold.
If China dedicates its vast resources to buying up stakes in gold producers around the world… that would create incredible momentum for gold stocks in general…
If you're looking for exposure to gold – in addition to owning bullion – we recommend you try a subscription to our friend John Doody's Gold Stock Analyst newsletter. John is the best gold-stock analyst we know... He's personally made millions of dollars using a proprietary strategy to invest in gold stocks.
And right now, John is super-bullish on gold stocks. He said he's going "all in" on the sector... The last time he was this bullish, he made 1,000%-plus gains in just two years.
You've got until midnight tonight to sign up for Gold Stock Analyst at a generous discount. It's the single best gold-stock newsletter we know. You can sign up here...
The saga between PC maker Hewlett-Packard (HP) and software company Autonomy continues... We've been writing for months about HP's downfall. The company is a middle-market computer manufacturer: Its products aren't elite, but neither are they cheap enough to appeal to bargain hunters. So in addition to suffering from a sector-wide decline in PC sales, HP faces competition from the lower and higher end of the market.
Add to that… HP is riddled with management mishaps. The firm has had three CEOs in as many years. And most recently, it took an $8.8 billion charge from its $11.5 billion acquisition of Autonomy last year. HP is claiming Autonomy used fraudulent accounting to hide problems with the company prior to the acquisition. You can read our full summary on the lawsuit here.
Now, the ordeal is making front-page headlines. And Autonomy founder Mike Lynch is publicly defending his firm.
HP's stock is trading near 52-week lows. And investors are upset. But they're not blaming Autonomy's allegedly crooked books... They're upset with HP – one of the largest technology companies in the world – and its accounting firm for not catching a nearly $9 billion hole before buying a company.
An HP shareholder is suing the firm for issuing false and misleading statements surrounding the Autonomy deal. HP CEO Meg Whitman, former CEO Léo Apotheker, and CFO Catherine Lesjak are named as defendants.
"At the time Hewlett-Packard agreed in principle to acquire Autonomy, defendants were looking to unwind the deal in light of the accounting irregularities that plagued Autonomy's financial statements," the complaint reads.
The suit also names HP Senior Vice President James T. Murrin, the company's chief accounting officer at the time in question. And the complaint alleges he sold 132,500 shares worth nearly $3.5 million while "in the possession of materially adverse and non-public information."
HP is almost the perfect short-sale candidate, according to our criteria... The company has an unsustainable debt load and it's in a declining industry. We've just been waiting for our third criterion (fraud)... Allegations of fraud, of course, have to be proven in court… Even if HP is only guilty of colossal mismanagement… the effect on shares will be about the same…
New 52-week highs (as of 11/26/12): Prestige Brands Holdings (PBH).
It's a Matt Badiali mailbag today... He's recommending 10-baggers and surprising subscribers with his picture. Send your feedback to feedback@stansberryresearch.com.
"I first subscribed to a Stansberry publication in 2008 to get Matt Badiali's Prospect Generator Report. Following his instructions, I bought some of each of the recommendations in the report. The idea was one or more would explode even if the rest collapsed, but there was no way to foretell the future. He warned us to use a 50% trailing stop, but I didn't know what that meant and glossed over it. Later I decided the original positions were so small (around $200 each) they were hardly worth the broker's fee to sell if they fell by 50%. Last week I sold one position (originally $250 of Sanu Resources at $0.10/share) for $4,409 and suddenly realized what had been growing under my nose. I still have five other prospect generators from the original list. Thank you, Matt, for my first 10-bagger." – Paid-up subscriber John Mathew
"Love the new website! Finally, putting faces to the names I've gotten so accustomed to reading, but not being able to see who was talking. The only one that really surprised me was Matt B... not at all the same as the picture in my head. Not a bad thing, just saying..." – Paid-up subscriber R.S.
Regards,
Sean Goldsmith and Dan Ferris
New York, New York and Medford, Oregon
November 27, 2012
Berkshire's new investors are getting to work... Porter's insurance picks... 'The World's Best Businesses'... Annaly: 'More income than you'll get anywhere else'... HP stays ugly...