How to make $3,775 on Apple today...
In today's issue, we're looking at a low-risk way to make good money on the beaten-down tech giant.
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Japan sends nuclear stocks soaring... Billionaire Tepper is super-bullish today... Revisiting 'financial asymmetry'... Your first chance to try Alpha...
In the latest issue of the S&A Resource Report – out last week – editor Matt Badiali discussed how Japan was getting ready to start increasing its reliance on nuclear power... despite its pledge to abandon uranium-fuel electricity.
As you may know... the March 2011 tsunami caused the release of radioactive material from Japan's Fukushima nuclear power plant. It was the worst nuclear accident since the meltdown at Russia's Chernobyl plant. In the wake of the accident, Japan's government vowed to stop using nuclear power.
However, as Matt told his subscribers, that's a lot easier said than done...
In his issue, Matt noted that Japan Oil, Gas, and Metals National Corporation (JOGMEC) – the government agency responsible for creating stable supplies of key resources – recently announced a plan with the government of Uzbekistan to explore for and develop uranium mines in central Uzbekistan's Navoiy province.
He also pointed out that Japanese voters were poised to elect a pro-nuclear power government. They were moves forced by pragmatism. From the December issue...
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Japan is discovering its no-nukes promise is creating a huge financial burden. According to a recent Japanese government study, it will cost $627 billion to replace the nuclear power plants. In addition, homeowner power costs will double to more than $400 per month. |
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In the meantime, the country is dealing with reduced power supply. Rolling blackouts are common. And it has turned to imported coal, natural gas, and oil to minimize the hole left by shutting down its nuclear reactors. According to Reuters news service, natural gas imports soared by 17%, coal imports rose nearly 21%, and crude oil imports were up 7% by June 2012. |
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Japan will hold its first election since the Fukushima disaster on December 16. And it looks like the "pro-nuclear" party is going to win. And if it does, don't expect Japan to be nuclear-free in the future... |
Australian newspaper The Australian reports that Japan's Liberal Democratic Party is expected to introduce new pro-nuclear measures... including rebooting Japan's 48 decommissioned reactors following a three-year review process. Should the proposal move forward, Japan's uranium demand would soar.
Badiali recommended three stocks to profit from the rebound in uranium... And all three were up today on the news. S&A Resource Report readers are up 14% in two weeks on one of his recommendations. The other two are both up 6%.
Hedge-fund billionaire David Tepper, founder of the $16 billion Appaloosa Management, appeared on CNBC this morning to talk markets. And he's bullish. Before we discuss his current views, let's revisit his views from late 2010... Tepper was buying stocks on the belief the Federal Reserve would ease more should the recovery slip. Here's what we wrote in the September 27, 2010 Digest...
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Last Friday on CNBC, Tepper described the Fed's statements that it would support the economy amid signs of a downturn as a "put." Tepper is so confident in the government's ability to goose the market that he's shifting his predominantly bond-focused fund into equities... |
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"What, I'm going to say, 'No Fed, I disagree with you, I don't want to be long equities.'" said Tepper. "We're a bond place, but we changed up to a little bit more equities recently." Tepper's reasoning is solid. He said either the economy will naturally improve over the next three months, in which case stocks will perform best... Or the economy won't do well over the next three months, and the government steps in. In which case, every asset class will rise except bonds. |
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Tepper has some experience making money from government intervention. Last year, his $7.5 billion fund returned 132%, mostly from betting on financials. |
Tepper is bullish again today. He says the U.S. economy has "tailwinds" of good data from the housing and auto sectors. And last week's announcement from the Fed means the central bank will pump more than $1 trillion a year into the economy...
"They're gonna keep doing this until the unemployment rate goes down," Tepper said. He expects we'll see this easing through next year. And with that kind of stimulus, he's not shorting any asset (including bonds, which he sees as "rich," but not in a bubble).
In addition to a strengthening U.S. economy, Tepper said the European Central Bank (ECB) just gave investors another "put" on the market... though nobody's talking about it.
Recently, the majority of the ECB voted to lower interest rates. But the central bank hasn't done so yet. This means ECB President Mario Draghi can lower rates whenever he wants. The ECB also promised to buy bonds earlier in the summer. (Again, it hasn't started yet.)
What Tepper means by all this is... you shouldn't expect any bearish European headlines to send the markets meaningfully lower. Any short-term difficulties will be met with the printing press... which will push up the nominal price of stocks. So we'll amend the classic trading maxim of "Don't Fight the Fed" to "Don't Fight the Fed and the ECB."
In the December 3 Digest, we wrote about China's growing demand for natural gas and its thirst for nonconventional oil and gas (like shale and Canada's oil sands)...
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China's liquefied natural gas (LNG) imports could make up 35% of its needs by 2015. |
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According to contracts already in place, China could purchase as much as 93 billion cubic meters (bcm) of natural gas in 2015. China's economic planning agency, the National Development and Reform Commission (NDRC), estimates the country's domestic production will equal 176 bcm by the same year. (That number is likely high, more on this below.) The NDRC says consumption will increase 20 bcm every year to 230 bcm by 2015. |
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Natural gas represents only 4.6% of China's current energy consumption. That is far below the global average of 24%. China's government has pledged to increase the natural gas share to 10% by the year 2020. |
China is spending a fortune to plug the gap. Last week, Chinese state-controlled oil giant CNOOC received approval for its $15.1 billion offer for Canadian energy company Nexen. In total, Asia-Pacific-based companies (both private and state-run) have spent more than $100 billion on energy deals this year, equaling their U.S.-based counterparts for the first time in history.
And the buying spree continues... PetroChina, China's biggest oil company by production, will spend $2.2 billion for a stake in a Canadian shale play. The company will form a joint venture with Canadian energy company Encana, giving it a 49.9% stake in Encana's Duvernay lands project in Alberta.
Last Friday, Porter introduced the concept of "financial asymmetry" to the Digest. In short, this concept involves making outsized gains with very little risk. Porter noticed many of his richest friends made their fortunes investing directly in companies on terms that were "absurdly unfair"...
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The more unfair, the better. Typically, companies that need a lot of capital (say, to drill a new oil well or find a new gold mine) will sell stock directly to individuals at a price that's well below the market price of the stock. |
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So if the shares are trading at $10, the financing might close at $8. Right off the bat, these private financiers are taking far, far less risk than they would buying the shares in the market. But that's not the only advantage. They also demand (and usually get) "warrants" in the stock. |
Warrants are like call options issued by the company... And as you may know, the price of an option is determined in part by the volatility of the stock in question. An option on a highly volatile stock is worth a lot. And as Porter wrote...
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... my friends get [the warrants] for free, as part of the deal. These guys are taking on a lot less risk than regular investors. |
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In these deals, there's tremendous financial asymmetry. They're buying stock at less than the market price. They're getting a call option for free. If the stock simply stays where it is, they'll make a small gain. If the stock goes up a lot, they'll make a bloody fortune. You don't need many deals like these to pan out well to earn a significant fortune in the market. I happen to know a few guys who've done it... several times. |
After several years of research, Porter found a way for individual investors to make the same kind of deal... You take minimal risk for potentially huge gains. And you only use this strategy on Porter's highest-conviction ideas (think capital-efficient companies like Hershey and McDonald's).
He calls this new strategy "Alpha." We sent you several e-mails over the weekend further describing it. Porter believes it will turn your conservative portfolio into a "world beater."
We've been publishing Stansberry Alpha in "beta mode" to Alliance members for a couple months. And the feedback has been terrific. For example, subscriber Roger McKay said...
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If this is the "beta" of the new advisory, I can hardly wait for the main event. The recommendation looks like a no-brainer. Too bad you have educated me on position sizes- I would have liked to put a larger position in play, but must stick with the discipline hammered into my head for the past 4 years. Keep up the good work, and thank you! |
And John White wrote...
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This is a great change and I'm already greatly impressed by Stansberry Alpha. It's a fantastic strategy and just the kind of advice I'm looking for to enhance my returns. |
If you missed the e-mails, don't worry. Today, for the first time, we've opened Alpha to the public. You can learn more about Alpha here.
New 52-week highs (as of 12/14/12): Guggenheim BulletShares 2015 High Yield Corporate Bond Fund (BSJF), iShares Germany Fund (EWG), iShares Singapore Fund (EWS), Sprott Resource Lending (SILU), Hershey (HSY), and CVS Caremark (CVS).
Lots of positivity in the mailbag over the weekend. You must be in the holiday spirit. Send your notes to feedback@stansberryresearch.com.
"Great column today... and one that is intellectually compelling. Those that leave the fold because they object to uncomfortable reminders that they are deficient in their ability to adapt to changes in their environment will go the way of dinosaurs. As for me, give me more of this analysis. At age 75, I don't have all that much time left for learning." – Paid-up subscriber Jim T.
"Dear Dr. Eifrig: 'With eagerness, fervor and passion' is the German meaning of 'eifrig.' That certainly fits you like a glove. Thank you for sharing your talents and expertise with us. As Americans living in Germany for the last 41 yrs., we are grateful for every expression of real intelligence being applied and shared for the common good of willing listeners, worldwide." – Paid-up subscriber Bruce Rhoten
"I am a longtime subscriber of many years, now retired. Of all the e-mails and information I receive, yours is at the top of the list, and always read first. My only lament is; Why weren't you here to help me when I was 25 instead of when I was 50? I would be a much richer man today if you had been there to teach and help Keep up the good work. Some of us are listening." – Paid-up subscriber Fred Hannah
Regards,
Sean Goldsmith
New York, New York
December 17, 2012
Apple shares fell to less than $500 today...
In September, Apple was every investor's favorite stock. Shares surpassed $700, making it the most valuable company in the world.
Then, the market got worried.
The talking heads feared Apple faced increased competition in tablets and phones from companies like Samsung and Google. Margins would contract. They wondered how many more iPhones and iPads Apple could sell, considering its success over the past few years. And they didn't think the company could continue wowing consumers with new products after Steve Jobs' death.
These worries, coupled with fears of the upcoming "fiscal cliff," pushed Apple shares from their highs of more than $700 to less than $500 at one point today.
We think this selloff is overblown.
And the market seems to agree... Shares bounced to just above $514 after bottoming out at $499. But we still think Apple has more room to run...
The company has more than $100 billion in cash. And it's trading at an enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of less than eight... This low multiple implies Apple has zero future.
A close contact in the technology sector told us he believes Apple is a $1,000-per-share stock. He notes the global market for smartphones and tablets is growing. And he believes Apple will still dominate the middle and high end of both categories (where the margins are best). Plus, the company will continue to grow revenues from iTunes and its new "Passbook" feature.
If you want to take advantage of Apple's giant selloff, you have a great opportunity to sell put options today.
Right now, you could sell February 2013 $515 puts on Apple and pocket $3,775 per contract. (Remember, each contract represents 100 shares.) And you'll be on the hook to purchase $51,500 in Apple stock if shares are trading for less than $515 when the options expire on February 3. Either way, this is a low-risk way to profit from Apple's recent selloff.
How to make $3,775 on Apple today...
In today's issue, we're looking at a low-risk way to make good money on the beaten-down tech giant.
To continue reading, scroll down or click here.
How to make $3,775 on Apple today...