Draghi talks market up... S&A's card shark... Curzio and Tilson on JCP... IBM sells more cheap debt... 'The most valuable strategy I know'... Doc's amazing track record...
Jon Hilsenrath's article about the Fed easing couldn't goose stocks, but European Central Bank (ECB) President Mario Draghi did this morning...
Just before markets opened, Draghi stated the ECB would do everything in its power to save the euro... "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro... believe me, it will be enough."
European markets ripped on the news... Italian and Spanish markets both gained nearly 5%. The S&P 500 is up 1.5%. And gold is up for the third-straight day to $1,613 an ounce.
A quick kudos to our Phase 1 Investor and Small Stock Specialist editor Frank Curzio... Last week, Frank played in the REACH (Rewarding Achievement) "Take 'Em to School" charity poker tournament in New York. REACH is a nonprofit organization founded by our friend, hedge-fund manager Whitney Tilson. The tournament benefits New York City's low-income students who want to go to college. The top hedge-fund managers and bankers – guys like Joel Greenblatt and David Einhorn – attend this event...
I (Sean Goldsmith) played in the tournament last year. We wanted to support Whitney, and I was the only person who could make it to New York City for the night. I'm also probably the worst poker player in our office. I enjoy the drinking, cigars, and camaraderie that go along with the game... But I don't have the patience to sit through an entire night of poker. So I go all-in early. I normally knock a few people out, then someone with a real hand doesn't back down.
Last year's tournament was no different... I knocked two people out on strong hands, then busted out soon after (a first-round loss).
Frank, on the other hand, is a great poker player. He made it to the final table of the tournament... And he finished eighth out of 240 people. Strong showing, Frank!
Frank also had the opportunity to talk shop with Tilson at the tournament. He asked about Tilson's position in troubled retailer JC Penney... Billionaire hedge-fund manager Bill Ackman took a large position in JC Penney. And he recruited Ron Johnson, who was responsible for Apple's retail-store success, as the CEO. It was supposed to be the "dream team" that could turn this company around. But Penney's dropped from a high of $43 a share in February to less than $20 a share today.
The company is attempting to change its clearance-focused sales strategy to one of everyday low prices without losing customers. The company also cut its dividend after a disappointing earnings announcement. Tilson loves the stock. And here's what Frank wrote in Small Stock Specialist...
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I asked if Tilson thought JCP was dirt-cheap following the selloff. He laughed almost in disgust, and said the company has a lot going on right now. If things go right, we could see a $100 stock long term. If not, we could see another drop of $10 per share or so. |
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That's a terrific risk/reward scenario... We're risking 50% to make 400%. But there's much more to this story... |
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We are able to buy one of America's well-known retail brands at a 50% discount to where the price was trading six months ago, and a 40% discount to where Ackman bought 360,000 shares in May. |
Curzio recommended JC Penney in the July issue. He said the stock was cheap, the company's cost-cutting initiatives will save billions of dollars, and – as stated above – the risk/reward scenario is strong. The stock is already up considerably from where Frank recommended it. But if Tilson's theory proves correct, there are bigger gains ahead...
(Stansberry Radio listeners know Porter is not a fan of JC Penney. Frank disagrees with Porter's take. Frank thinks the bad news is already priced in and that a little "less bad" news could send the stock much higher.)
Technology behemoth IBM just broke the record for the lowest interest rate on a corporate bond issuance in U.S. history... The corporate giant sold $1 billion of 10-year debt yesterday with a yield of 1.875% – 10-year Treasurys yield 1.42%.
The previous record belonged to consumer products giant 3M, which sold 10-year notes at 2% in June. This is the third time this year that IBM has issued debt at record-low rates.
These dismal yields are the reality for bond investors today... Lots of institutional investors are mandated to only invest in the highest-quality corporate and government bonds. And they're agreeing to lend money for 10 years for less than 2% a year. It's a joke.
At these yields, IBM could take that $1 billion, buy back its stock, and nearly cover the interest from the dividend (currently 1.8%). Whatever the company decides to do with the money it raises from bond sales, it's confident it can create a greater-than-1.87% return.
On a side note, in February, we ran a snippet from superinvestor Warren Buffett's letter to shareholders explaining why he loves stocks that "languish" and share buybacks. He uses IBM as an example. You can read it here...
While some large investors are mandated to buy bonds at these laughable yields, fortunately we are not... We can buy stocks of blue-chip companies yielding 3%-4%. We can also generate income using one of our favorite trading strategies: selling puts.
As I said in yesterday's Digest...
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Selling puts is the most valuable trading strategy I know. It allows you to generate income, while naming the price you're willing to pay for world-class companies. If you stick to that strategy, it's among the safest ways to make profits from the stock market. |
In fact, I took advantage of the market downturn and volatility spike to sell puts on a couple different companies this week. I guarantee that once you close your first successful put sale, you'll be hooked... I can't describe how satisfying it is to see hundreds, even thousands, of dollars immediately hit your account. And it only takes one of these trades to see how simple the strategy really is.
If you're looking for a guide through the world of put selling, no one is better than Dr. David "Doc" Eifrig. Since starting his Retirement Trader advisory service (which focuses on selling puts) in 2010, Doc has closed out 79 straight series of winning positions – including 11 winners last week alone.
It's probably the greatest track record in newsletter history. And subscribers who have followed his low-risk trading recommendations could have made a fortune. One gentleman generates $25,000 a month in extra income. And in today's mailbag (below), you'll see another testimonial from a reader who started trading puts and is now generating a steady income.
If we could only teach you one trading strategy, it would be selling puts. If you're looking for extra income – and who isn't, in today's zero-percent interest-rate world? – I'd encourage you to try a subscription to Retirement Trader. Even if you've never considered yourself a trader, you should sign up... We doubt you'll find a better way to consistently generate big income. You can improve your put-selling education by clicking here...
New 52-week highs (as of 7/25/12): Two Harbors (TWO).
Don't miss the excellent feedback for Doc's Retirement Trader in today's mailbag. Have you recently tried selling puts? Tell us about your experience here... feedback@stansberryresearch.com.
"I've taken a few days to put my thoughts together so I could respond to your interest in knowing whether any of us out here have followed your recommendation to sell puts. I must admit that your subscriber a few days ago saying he's making $25,000/mo. is unreal, but maybe he is either taking extraordinary risks or he has a lot more money to play with than I do. But congratulations to him.
"I on the other hand started much more slowly.
"Until late last year, I had avoided anything having to do with options. I accepted conventional wisdom that they are too risky, very complex and only for people that were willing to throw their money away. But thanks to Doc E. and his excellent video series along with your directing people to the Palm Beach Letter for further investment advice, I decided that since I've been an Alliance Member now for a number of years and paid thousands of $ to join, I needed to pay attention. So late last year I decided to give it a try and in the first five positions I took, I lost money on 3 out of 5.
"Ok, so what am I doing wrong? Hmm... I guess picking my own stocks instead of Doc E's and also the Short Report just might be the problem? So sit back, relax, take a deep breath and what's not to understand? How much easier can it be to get paid up front to buy stocks that I like at a discount? It's so logical. I might possibly buy stocks at a price I would like to pay! And if I don't get them at my price, I get to keep the money I received up front. Whoopee...
"Starting in January, I commenced once again on the yellow brick road. I looked to sell puts and also covered calls against stocks I already owned. I have now done the following number of trades – Nov (1), Dec (3), Jan (11), Feb (27), Mar (17), Apr (10), May (7), June (19) and July (17) for a total of 112.
"My scorecard for closeouts so far is 50 for a profit and 5 for losses (where I closed out early if I decided I didn't really want to take a chance and be put the stock). So profits of $17,944 against losses of $1,218. Not as impressive as your other subscriber, but July so far has made me $6,500.
"I did get put 7 stocks – 5 gold, 1 silver and 1 natural gas. Well, not surprising if you consider how much gold and silver has fallen since the first quarter. But get this, had I purchased all the shares of stocks I now own at the time I purchased the options, I would have paid over $30,000 more! Double whoopee...
"The best part is that after some 20 years of investing (hahaha, the jokes on me considering how many blunders I have made along the way) I'm really having more FUN than I ever imagined possible. I love the stocks I got put at a price I'm glad to have paid and I'm actually giddy every day when I look at how much I can skim off the top of my favorite stocks? I feel like a Vegas casino owner (without the overhead). I only buy enough contracts to hopefully make a few hundred $ up to $1,000+.
"Today was my biggest score, over $1,500 on covered calls on one stock where I bought back the option at $0.20/sh (originally $0.82/sh) and bought (actually sold) another covered call option a further three months out for $0.98/sh. If the stock gets called away from me, fine – it's at a higher price than I paid originally for the stock and I get to keep the premium!
"Every morning I tell myself – sell puts first, then think about whether I would rather buy the stock. I do own a bunch of stocks like MLPs, virtual banks, preferreds and muni bond funds because I need to generate income through their dividends. But I think, unless unforeseen disaster occurs, I'll be selling options (haven't bought any yet) for as long as I'm kicking.
"Thank you for continuing to encourage us to give this a try. As I said earlier, I'm actually enjoying myself again." – Paid-up subscriber Pete Lipke
Ferris comment: Congratulations on your success. But be careful with this idea... "Every morning I tell myself – sell puts first, then think about whether I would rather buy the stock..."
As we always remind subscribers... Only sell puts on stocks you'd be happy to own at prices you're willing to pay. If you've sold puts, you've as good as bought the stock... or at any rate, you've committed to buy it.
Regards,
Sean Goldsmith and Dan Ferris
New York, New York and Medford, Oregon
July 26, 2012