Tue, Jan 28, 2014|Sean Goldsmith

Is the correction over?...

The two things the media will try to scare you with this quarter...

In today's Digest Premium, James Altucher, host of our newest podcast, discusses two things the media will try to blow out of proportion in the coming months...

To continue reading, scroll down or click here.

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 01/27/2014

Stock	Symbol	Buy Date	Return	Publication	Editor
Rite Aid 8.5%	767754BU7	02/06/09	732.0%	True Income	Williams
Prestige Brands	PBH	05/13/09	387.0%	Extreme Value	Ferris
Constellation Brands	STZ	06/02/11	256.7%	Extreme Value	Ferris
Enterprise	EPD	10/15/08	249.3%	The 12% Letter	Dyson
Ultra Health Care	RXL	03/17/11	204.9%	True Wealth	Sjuggerud
Ultra Nasdaq Biotech	BIB	12/05/12	181.0%	True Wealth Sys	Sjuggerud
Altria	MO	11/19/08	180.3%	The 12% Letter	Dyson
Fluidigm	FLDM	08/04/11	171.9%	Phase 1	Curzio
GenMark Diagnostics	GNMK	08/04/11	168.3%	Phase 1	Curzio
Ultra Health Care	RXL	01/04/12	166.2%	True Wealth Sys	Sjuggerud

Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.

Top 10 Totals

1	True Income	Williams
2	Extreme Value	Ferris
2	The 12% Letter	Dyson
1	True Wealth	Sjuggerud
2	True Wealth Sys	Sjuggerud
2	Phase 1	Curzio

Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)

Investment

Sym

Holding Period

Gain

Publication

Editor

Seabridge Gold	SA	4 years, 73 days	995%	Sjug Conf.	Sjuggerud
ATAC Resources	ATC	313 days	597%	Phase 1	Badiali
JDS Uniphase	JDSU	1 year, 266 days	592%	SIA	Stansberry
Silver Wheaton	SLW	1 year, 185 days	345%	Resource Rpt	Badiali
Jinshan Gold Mines	JIN	290 days	339%	Resource Rpt	Badiali
Medis Tech	MDTL	4 years, 110 days	333%	Diligence	Ferris
ID Biomedical	IDBE	5 years, 38 days	331%	Diligence	Lashmet
Northern Dynasty	NAK	1 year, 343 days	322%	Resource Rpt	Badiali
Texas Instr.	TXN	270 days	301%	SIA	Stansberry
MS63 Saint-Gaudens		5 years, 242 days	273%	True Wealth	Sjuggerud

The two things the media will try to scare you with this quarter...

Editor's note: As we mentioned in yesterday's Digest Premium, The James Altucher Show is the most recent addition to the Stansberry Radio stable. Today's piece is adapted from comments he made on the inaugural episode of his podcast...

Over the next few months, the media is going to scare you with two things. The first: Puerto Rico is going to default on its $70 billion in debt.

They're going to say in the media that this is going to bring down the U.S. economy. It won't. Four months from now, buy municipal bonds in Puerto Rico. They'll be so cheap because of the fear, that they'll finally be worthy of buying. But don't worry that Puerto Rico is going to bring down the world's economy.

The other thing the media will do over the next few months: They're going to keep on with the theme, "Oh, the Federal Reserve is going to start tightening again. It's so scary. The Federal Reserve is going to stop buying bonds or equities or all the things that they're buying, they're going to stop buying toys at the Toys R Us and suddenly the U.S. economy is going to flounder and collapse."

Based on history, this is BS. So if you look back at every single time the Federal Reserve has started tightening – going all the way back to World War II – the market would panic a little bit because that's what the media does. But a year later, in almost every single situation, the market was higher.

A great example was 2004. Interest rates soared from 1% to 5%. And the stock market kept going up until November 2007. In May or June of 1999, interest rates rose. The stock market went straight up for another year.

Porter has expressed his own concerns about what will happen to markets when the Federal Reserve withdraws all (or most all) of its "stimulus." And when that stimulus totally ends, it will be a problem. But so far, its "tapering" has been marginal... and as long as it's pumping huge volumes of money into the economy and keeping interest rates near zero, things will be fine.

We're talking about right now. Nobody is predicting a year out. Right now, when someone tries to control you and panic you, just sit on your hands. Don't let the panic hit you.

I can go back to 1994, 1982, 1971, or 1966. All these times, when the Feds started tightening, the stock market was higher a year later (or at worst, flat). Sure, it would dip a little because of the panic. Those are good times to sit on your hands or buy, but always ignore the panic.

This is a critical key to success in terms of having freedom... of not letting the media dictate your emotions just because they want to sell more newspapers. (It's also an opportunity to make money.)

– James Altucher

Editor's note: We recently launched James Altucher's podcast, The James Altucher Show. To sign up to receive the episodes completely free of charge – and to receive a free gift – click here and subscribe on iTunes, and e-mail James at james@stansberryradio.com with the subject line "Podcast Subscriber."

The two things the media will try to scare you with this quarter...

In today's Digest Premium, James Altucher, host of our newest podcast, discusses two things the media will try to blow out of proportion in the coming months...

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

Is the correction over?... Sjuggerud on emerging markets... Leon Cooperman says buy the dips... Apple gets crushed... Icahn is buying more... Why Dan Ferris raised his buy price on Apple... Wisdom from Warren Buffett...

The markets reversed a three-day slide today...

The S&P 500 fell from 1,844.66 on January 22 to 1,781.56 yesterday – a 3.4% slide.

We've been calling for a correction this year. Sentiment was incredibly bullish. The market was frothy. And nothing goes straight up forever without taking a break.

Even after the recent correction, the S&P 500 is up more than 35% over the last two years.

As we discussed in yesterday's Digest, the selloff was due to fears in emerging markets. In short, there's political unrest in Turkey, Ukraine, and Argentina. There are tensions between Japan and China. Also, investors worry China is slowing down. The confluence of events pushed stocks down.

I e-mailed Steve Sjuggerud, who has urged subscribers to buy emerging markets, for his take on the selloff. Here's what he told me...

All of a sudden, everybody is worried about emerging markets...

To me, this is good... You can set up a great risk-versus-reward trade in emerging markets right now.

Emerging markets are clearly HATED right now, which is something I want to see when I buy an investment.

They're also CHEAP. Specifically...

1) Emerging markets are extremely cheap nominally (with China at a forward price-to-earnings ratio of eight and Russia paying 5%-plus dividends), and...

2) They're also extremely cheap relatively... the value "spread" is extremely wide relative to developed markets.

As you probably know, the ideal investment to me has three things going for it... it's cheap, hated, and in an uptrend. We clearly have the first two. But we clearly do NOT have the last one...

I do not want to be forced to close out my position in emerging markets. However, I will be forced to, if the downtrend continues and we hit our trailing stops.

If you're not in yet, a gutsy-but-interesting trade is to buy emerging markets now and set a stop loss at the trailing-12-month closing low price. That way, your downside risk is very limited, but your upside potential is incredible because of the value you're getting.

I like emerging markets... I think they have incredible upside. But it's tough to be successful without an uptrend in place when you buy. The ideal time would be to wait for the uptrend to show itself.

Billionaire hedge-fund manager Leon Cooperman, one of the best stock-pickers in the game, shared his views on emerging markets with CNBC this morning.

Cooperman, who founded Omega Advisors, was expecting a correction. He said too many people were bullish. But the troubles in the emerging markets don't bother Cooperman... They're "not insignificant," he says, but they're also "not major."

Cooperman noted 75% of the world's gross domestic product (GDP) is stable or expanding. The U.S., Europe, Japan, and China are all expanding.

Only 10% of the S&P 500 earnings come from emerging markets (around 15% if you include China)... So it shouldn't move the needle that much.

In general, Cooperman said he views this as a correction in an ongoing bull market.

While in Switzerland for the World Economic Forum, Lloyd Blankfein, CEO of investment bank Goldman Sachs, told CNBC that he would choose to be long – not short – emerging markets for the next one to five years.

The stock market was up today, but one of the most popular blue-chip stocks in the world is getting hammered...

Consumer-electronics giant Apple fell nearly 8% after the company reported earnings yesterday that disappointed investors.

For the first fiscal quarter, Apple announced flat earnings of $13.1 billion. (Earnings per share were up 5% due to share repurchases.) Revenue grew 5.7% to $57.6 billion. Meanwhile, the company broke iPad and iPhone single-quarter sales records.

You may wonder why a company that reported record sales and grew its top line is being punished. Wall Street is all about expectations and predicting what a company will do every quarter. And Wall Street wanted Apple to sell more iPhones...

Apple reported it sold 51 million iPhones in the first quarter, up 7% from the same period a year ago. Analysts expected Apple to sell 55 million units. The company also said revenue in the current quarter could come in below analysts' expectations.

Is Apple – which trades for less than six times earnings after subtracting its $155 billion cash hoard – really worth 8% less today than it was yesterday?

Billionaire investor Carl Icahn, who owned $3.6 billion of Apple stock before today, announced he purchased an additional $500 million of stock. Icahn disclosed his position through the social-networking website Twitter, adding, "My buying seems to be going neck-and-neck with Apple's buyback program, but [I] hope they win that race."

Icahn is urging the company to use its massive amount of cash to buy back more shares.

Icahn also told CNBC's Scott Wapner that he has made a lot of money buying Apple shares on dips... and that Apple's announcement of new products in new markets within the year was bullish news for the stock.

The main headline on Yahoo Finance this morning read "New Apple Looks Like the Old Microsoft" – suggesting the company is stodgy and old. It's ridiculous...

In the November issue of Extreme Value, Dan Ferris raised his "buy up to" price on Apple. Here's what he wrote at the time...

Apple reported its financial results on Monday for its 2013 fiscal year, which ended on September 28. The Five Essential Financial Clues look better than ever.

Gushing Free Cash Flow

Apple gushed $45.5 billion of free cash flow last year, the most of any non-financial public company, according to data compiled by Bloomberg. That was on $170.9 billion in sales, a super-thick 26.6% free cash flow margin.

Shareholder Rewards: Dividends and Share Buybacks

Apple rewarded shareholders with an unprecedented 73% of free cash flow in dividends and share repurchases. (If you deduct the $17 billion in debt Apple took on to buy back shares, it used just 36% of free cash flow for dividends and buybacks. That's still a good showing.)

Apple has a share-repurchase authorization to buy back $60 billion in stock within three years. It has $24 billion left. It looks like it won't even take Apple two years to complete its share-repurchase plan.

Consistent Profit Margins

Apple's margins declined last year, but they were still thick. It had gross margins of 37.6%... operating margins of 28.7%... and net margins of 21.6%. Those are excellent numbers. Apple's products will likely continue to garner premium prices, resulting in consistently thick margins.

Financial Fortress Balance Sheet

Apple still has a gigantic financial fortress balance sheet. It has $146.8 billion in cash and securities and just under $17 billion in debt. That's more than eight and a half times more cash than debt. Apple will never have a financial problem as long as the balance sheet stays flush with cash.

Consistent Return on Equity

Apple earned 31% on starting shareholder equity last year. If you reduce its cash hoard by $100 billion or so, it would earn more than 200% on equity. This is a phenomenal business. It can't reinvest much capital at those enormous rates. Last year, capital spending was less than $8.2 billion. But every dollar it does reinvest is money extraordinarily well-spent.

Apple nails all the financial clues. It's a truly fantastic business. And right now, you can get it for an enterprise value of just 7.5 times free cash flow, compared with Microsoft's 10 times. That's a steal.

Apple might not do exactly what I want it to do. But so far, it doesn't contain the risk of making large, wasteful acquisitions. It has proven that it's a better capital allocator than Microsoft. And it's super-cheap right now. So I'm willing to raise our buy-up-to price.

We'll leave you today with this excerpt from investment legend Warren Buffett's 2011 letter to Berkshire Hathaway shareholders. He was discussing his large position in IBM and its share-buyback plan.

This lesson is applicable to Apple and Microsoft today... or any stock that languishes, while still gushing cash and rewarding shareholders...

Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%. Naturally, what happens to the company's earnings over the next five years is of enormous importance to us. Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period?

I won't keep you in suspense. We should wish for IBM's stock price to languish throughout the five years.

Let's do the math. If IBM's stock price averages, say, $200 during the period, the company will acquire 250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we would own about 7% of the company. If the stock conversely sells for an average of $300 during the five-year period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after five years, of which we would own 6.5%.

If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100 million greater under the "disappointing" scenario of a lower stock price than they would have been at the higher price. At some later point our shares would be worth perhaps $1.5 billion more than if the "high-price" repurchase scenario had taken place.

The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day's supply.

New 52-week highs (as of 1/27/14): Virginia Mines (VGQ.TO) and Vringo (VRNG).

Thanks for your help in boosting The James Altucher Show's ranking on iTunes... With your support, we've reached the No. 3 spot for all podcasts. But we'd like to keep it going. If you haven't already, please subscribe to James' show – completely free of charge – by clicking here. As always, send your e-mails – good or bad – to feedback@stansberryresearch.com.

"I'd like to provide a readers input on your Trading Services Report Card. As a 10 year subscriber and True Wealth Alliance member I've been following True Wealth Systems (TWS) since it came online. I was impressed with the research Dr. Steve and crew put together and decided to invest my self-directed IRA entirely in TWS recommendations almost exactly 2 years ago in Jan. 2012. As I don't expect to draw from my IRA for 15+ years I have limited my portfolio to 10 to 12 of Steve's top recommendations and let the positions run till they get kicked out either by the TWS computers or on a few occasions by a 15% Trailing Stop I have imposed (using the excellent TradeStops service). In the two years from mid-January 2012 to 2014 my portfolio has grown approximately 44% inclusive of dividends but no new money in. I love this service because it is easy to manage and allows you to be fully invested the majority of time. I give TWS an A+.

"Additionally since last fall I have started implementing some of the covered call and particularly naked put strategies outlined by DailyWealth Trader, Retirement Trader, and Stansberry Alpha. While Alpha and Retirement Trader were both rated A+, I'm finding them much harder for even a somewhat educated investor to implement. The options trades are frequently hard to get into at suggested prices, as they tend to be thinly traded and I'm guessing move quickly out of range when a slug of subscribers pile into a trade. There is also the double edge sword of leverage to contend with.

"While most brokers require only a 20 to 25% margin deposit to sell a Put, the investor is ultimately responsible for 100% of the cost should the position move against them. As I understand it, should there be a flash crash the buyer of your Put Option can exercise their option to sell at any time, so you need to have capital ready to cover the purchase. While I understand it is unlikely an investor would have to cover all their sold Put Options at once, it's looming a possibility, especially if Porter's prediction of a 50% correction comes to fruition.

"Then there is the thin profit on the premium versus the potential loss should you get stopped out. In early January I sold a recommended Put on Target Corp. The most I could earn was $306 on the premium for a 45 day contract. With just a 10% stop loss on cost basis, my total potential loss could be $1220, four times my best potential outcome. And unfortunately with Target it's looking likely we'll hit the stop loss or at a minimum be put the shares, requiring several successful trades to get back to even.

"So while your put selling services may have a better report card, its TWS that's actually working for me. Thanks for your efforts and honest analysis." – Paid-up subscriber Steven Wasson

Regards,

Sean Goldsmith

Miami Beach, Florida
January 28, 2014