Mineral-rich Australia hitting new highs... How to get rich in biotech... New high for GenMark... 'Digest Premium rocks!'...
In the December 2011 issue of True Wealth, editor Steve Sjuggerud explained why he was bullish on both the Australian dollar and that country's stocks.
Australia has long been a proxy for natural resources... The country leads the world in "economically recoverable reserves" of commodities like lead, zinc, uranium, nickel, and others. It ranks second in the world in economically recoverable reserves of gold, silver, and copper, according to the Australian Bureau of Statistics.
The Australian government owns the country's mineral and petroleum resources (as opposed to the U.S., where mineral rights can be privately owned). And that makes Australia rich... And a safe place to park your money.
As Steve explained in True Wealth…
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In a way, the nation's currency – the Australian dollar issued by the government – is solidly "backed" by the country's vast natural resources, owned by the government. |
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In short, our money is safe in Australia... |
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By the year 2020, America's national debt will have grown to over $20 trillion (according to the Congressional Budget Office). But in 2020... astoundingly, Australia as a nation will be net debt-free (according to the International Monetary Fund). |
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However, the Australian government is in better shape to handle a crisis than any country in the world. The typical government "tools" to fight back a crisis are to 1) borrow money and 2) cut interest rates. |
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With no debt, and a very high 4.5% deposit rate, Australia has plenty of room to do both today... |
On Monday, Australia's central bank – the Reserve Bank of Australia – cut the benchmark interest rate to 3% from 3.25%. The bank was reacting to recent data showing building approvals had dropped the most in three months and the country posting a wider-than-estimated current-account deficit.
You would expect a rate cut to scare people out of a currency. (It is bullish for stocks, however, which we'll discuss later...) Lower rates decrease the amount of money investors receive for holding funds in that currency. But the Australian dollar actually rallied against all major currencies after the announcement. That's how strong the world views the Australian dollar (and its supporting mineral riches).
True Wealth readers are sitting on an 8% gain with the CurrencyShares Australian Dollar Trust Fund (FXA)... And they continue to collect a 3.4% yield by investing in Australian dollars (as opposed to almost zero holding U.S. dollars).
In the same issue, Steve recommended Australian stocks. At the time of the recommendation, with the exception of the financial crisis, Aussie stocks were paying their highest dividends since 1991. And the price-to-earnings ratio on Australian stocks was just 11 – a cheap valuation.
Betting on a higher Aussie dollar and higher Aussie stocks can be counterintuitive... If the Aussie dollar rises by, say, 10%, the value of the Aussie stock fund also rises by 10%, all things being equal. But a higher Aussie dollar hurts the profits of Aussie exporters. Their costs are in Aussie dollars, but they receive payment in U.S. dollars. So their costs increase, but their sale prices stay the same.
Still, Steve believed Australia's fundamentals were so strong that readers would make money on both.
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The thing is, I believe Australian companies are so cheap right now, we'll make money on currency appreciation AND on "multiple expansion," as investors reevaluate the merits of having money in Australia and push these stocks to higher valuations. |
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Australia has what China needs. It's in fantastic shape... It will be net debt free by 2020 and it has plenty of room to cut rates if the economy stalls at all. Our upside potential is great. |
The iShares Australia Fund (EWA) – a basket of Australian equities that Steve recommended in the same December 2011 issue – hit a 52-week high yesterday. True Wealth readers are up 17% on the recommendation.
I asked Steve for an update on Australia. He sent me the note (below) this morning…
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Australian stocks are hitting highs... but this is more of a buy signal than a sell signal... What's happening is, Australia is finally joining in on the Bernanke Asset Bubble... Just this week, Australia's central bank cut rates to a half-century low – down to 3%. There's still room to cut interest rates lower... which would push Aussie stocks even higher. Australia is a buy! |
As bullish as Steve is on Australia, he's even more bullish on biotech. From the February issue of True Wealth…
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NOBODY is in biotech these days. Meanwhile, biotech stocks have just hit 11-year highs. The shareholder value here is tremendous. We HAVE to get in. The gains can be simply ridiculous. |
As Steve likes to say, "If you catch just one biotech bull market in your lifetime, you may never have to work again."
As you can see from the chart below, biotech has enjoyed a big rally this year. But it sold off big after the election…
Like any healthy bull market, biotech stocks needed to "take a breather." But after the selloff, it's time to jump back in. Before we discuss specific opportunities, I'd like to give kudos to Phase 1 editor Frank Curzio. One of his favorite biotech stocks, GenMark Diagnostics, hit a new high on Monday…
Frank recommended GenMark in the August 2011 issue of Phase 1. It's a tiny company trying to carve out a niche in one of the most exciting long-term areas of the diagnostics market, DNA testing.
The company's stock has been booming thanks to strong sales of its XT-8 system, a "desktop," touchscreen DNA sequencer sold to laboratories. GenMark is also working on its new system, called NexGen, which is still in the prototype stage. NexGen will be sold to hospitals, a much bigger market than the one for XT-8.
Here's what Frank wrote in August 2011…
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GenMark is one of our favorite plays on the massive genomics boom. We're not surprised to see Wall Street noticing the company's huge potential. GenMark's XT-8 system allows labs to simultaneously run multiple tests on a sample. Longer-term, the company is developing another system, called NexGen, that streamlines the testing process by eliminating much of the preparation necessary before a sample gets analyzed. If NexGen is a hit, GenMark will open up a huge new group of potential customers. |
To date, Phase 1 readers are up 105% on GenMark. And if the company's new system, NexGen, is a hit, we expect those gains to increase.
But GenMark isn't the only biotech winner in Phase 1. In April, Frank recommended shares of Human Genome Sciences. The company uses DNA sequences to develop specialized drugs. Frank believed the company would be taken over... Two weeks later, GlaxoSmithKline offered to buy Human Genome for an 80% premium.
Phase 1 readers have closed half their position for a 79% gain.
He also booked a 43% gain in a few months on Dendreon – a company with an FDA-approved cancer drug. The stock had been crushed. Frank thought it was too cheap. Then, in January 2012, the company announced positive news about reimbursement costs regarding its signature cancer drug Provenge.
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New 52-week highs (as of 12/4/12): iShares Australia Fund (EWA), Vanguard Inflation-Protected Securities Fund (VIPSX), and Home Federal Bancorp (HOME).
We're on Day 2 of publishing Digest Premium, and the positive feedback keeps rolling in... We launched this service yesterday for our Alliance members and "Capital Level" Stansberry's Investment Advisory subscribers. We expect to open it to everyone soon.
And if you're one of those receiving Digest Premium, let us know what you think... feedback@stansberryresearch.com.
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December 5, 2012
Why J.C. Penney is sunk...
Lots of investors believe billionaire hedge-fund manager Bill Ackman is just what beleaguered retail chain J.C. Penney needs to right its ship… As Porter explains in today's Digest Premium... Ackman hasn't got a shot…
Click here to continue reading.
Earlier this year, I (Porter) sent this e-mail to a well-known hedge-fund manager. He's super bullish on the well-known retailer J.C. Penney and has sunk a portion of his clients' money into the stock...
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So... did you hear the joke about the two hedge fund managers with the great reputations and the giant egos who thought they were smart enough to stop the secular decline in low-class department stores? You know, the ones built in places where people don't shop anymore... ever? |
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I can't remember how the punch line goes... but I think it's something like: |
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"When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." |
At the time I sent my note, Penney's shares were trading around $24. Today, they're at less than $18...
The "punch line" is a quote from Warren Buffett. It's his simple warning that in the battle between good managers and bad businesses... bad businesses will win almost every time.
It's a lesson Bill Ackman, founder of the hedge fund Pershing Square Capital, is learning the hard way with J.C. Penney... just as hedge-fund hotshot Eddie Lampert has learned it over the past decade with Kmart and Sears Holding...
Ackman is a legend among value investors, and he's the source of my friend's optimism with J.C. Penney. Ackman currently owns around 20% of retailer J.C. Penney. His average cost is around $31 a share. Ackman also holds a board seat. He recruited former Apple retail head Ron Johnson to lead a turnaround as CEO of Penney.
And Johnson immediately started changing the company... He eliminated promotions and discounts (a Penney trademark) in favor of a "fair and square" pricing model, rebranded the company as "JCP," and made the stores more upscale by creating a "store within a store" shopping experience with brands like Levi's and Izod... Penney also partnered with Martha Stewart.
We've chronicled Lampert's struggles trying (and failing) to turn Sears around. So far, Ackman isn't faring much better with J.C. Penney...
J.C. Penney released a terrible quarterly performance report last month. Customer traffic dropped 12% in the most recent quarter. Revenue fell 26.1%, and the retail chain lost $123 million.
The stock fell nearly 11% following the announcement. Rating agency Standard & Poor's also downgraded J.C. Penney's credit further into junk status.
There's not much Ackman and Johnson can do to stem the bleeding... As I explained in the e-mail to my friend...
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Ironically, one of the very first stocks I ever covered as an analyst was Sears. |
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This was back in 1998, when I'd just started writing The Fleet Street Letter with Bill Bonner. My analysis was simple: No one I knew would go to Sears. No one I knew would shop there. No one I knew would be caught dead wearing anything from Sears. And since Home Depot sold better tools for less... and because Best Buy sold better refrigerators for less... there was no reason to ever go to Sears... |
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All the same things were essentially true of JCP, too... and... like Sears... you'd be way ahead if you'd shorted it 14 years ago... |
In an interview with the cable network CNBC, a defensive Ackman revealed Penney's big plan to drive traffic to its stores over the holidays... They're giving out pins with barcodes on the back. Shoppers can scan the code and potentially win gift cards and trips.
Even more remarkable... Ackman says all the changes Johnson is implementing amount to "a startup" inside JCP that's growing fast. He added that the biggest obstacle to a new startup is real estate – that it takes time for a chain to buy up properties and build stores.
Of course, that presupposes J.C. Penney's locations are desirable. They aren't. Take a look at its Baltimore-area locations here. Four of the five are in declining neighborhoods. Owings Mills, for example, was a crown-jewel mall property when the Rouse Co. opened it in 1986... Today, it's a retail ghost town. Current owner General Growth Properties plans to level it next year.
If that were J.C. Penney's only problem, perhaps Ackman and Johnson would have a shot. But it's not… Tomorrow, we'll show you what's really killing J.C. Penney, and where it creates an investment opportunity…
Why J.C. Penney is sunk...