Our natural gas prediction is playing out... Health care boom recipients hit new highs... 'One of the boldest calls in the newsletter industry'... Great feedback on Porter's GM rant...
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Digest readers know Porter is bearish on oil. At a Casey Research conference in April – when oil was above $105 a barrel – Porter sounded the alarm.
Today, oil is trading for less than $85 a barrel. Most headlines attribute the drop in prices to the European crisis and a slowdown in China. Porter sees a longer-term trend building that will push down oil prices... The drilling happening in the huge oil reserves in shale-rock formations right now – in places like Texas' Eagle Ford and North Dakota's Bakken shale – will create a glut in domestic oil supplies.
We've already seen what a supply glut can do to prices in the natural gas market... Natural gas prices spiked to nearly $14 per thousand cubic feet (mcf) in 2008, but sit at less than $2.50 per mcf today – an 80%-plus decline from the peak. But Porter does not expect natural gas prices to stay depressed for long.
As he wrote in the November 2011 issue of his Stansberry's Investment Advisory: "What will propel natural gas prices over the medium term (say, five years) is an economic truism: It's impossible for a surplus of energy to exist for long. As prices fall, more and more uses for natural gas will appear. At some price, natural gas becomes competitive with other forms of energy."
Since making his prediction, the so-called oil-to-natural-gas ratio has collapsed. Take a look at the following chart. It compares the prices of oil and natural gas. The higher the line goes, the cheaper natural gas is relative to oil (at rating in the "teens" used to signify cheap gas)... We ran this chart last month in the Digest... It's fallen more since then. We expect the ratio to continue declining.
One catalyst for higher natural gas prices is foreign demand. While gas is dirt-cheap domestically, foreign buyers are paying much, much more to import natural gas from places like Qatar and Australia. From the July 2011 issue of Stansberry's Investment Advisory…
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Let me give you a recent example of how lower prices for American LNG [liquefied natural gas] will stimulate demand globally. LNG World News, a trade publication investors rarely read, reported in June: |
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"Japanese power utilities and South Korean users bought a combined 6 million metric tons of liquefied natural gas in May, adequate to supply India for eight months, as oil cost almost twice as much as gas to burn." |
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South Korea paid an average $631 a ton delivered, equivalent to about $12 per Btu. Japanese power plants increased LNG purchases by 28% from a year earlier. |
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These are extremely big numbers. A sea change is happening right now in the energy markets. And most U.S. investors remain totally unaware. |
In that issue, Porter recommended shares of Dominion Resources – a $30 billion energy giant with operations in regulated utilities, nonregulated power generation, and natural gas distribution. At the time of the recommendation, the company announced plans to convert its Cove Point, Maryland liquefied natural gas (LNG) import facility to an export facility. In addition to taking part in a huge, macro trend, Dominion paid a dividend of more than 4%. The stable nature of its business and large dividend no doubt attracted skittish investors in recent months.
Dominion hit a 52-week high last Friday. Porter's subscribers are up 16% on the recommendation. (And they've collected more than $2 a share in dividends.)
Eli Lilly – one of Dr. David "Doc" Eifrig's Retirement Millionaire recommendations – also hit a new high on Friday. When Doc originally recommended the stock in his July 2010 issue, he called it "one of the best retirement stocks you'll ever buy."
At the time, Lilly was paying a 5.7% dividend (10-year Treasurys were paying 3.13% then, nearly double today's yield). And the company had paid a dividend for 125 years… increasing it for 42 consecutive years.
Eli Lilly was one of several stocks Doc recommended to profit from the coming health care boom. As Doc discusses regularly in Retirement Millionaire, the aging Baby Boomer generation is making the retirement-age population the fastest-growing segment of the U.S. The population as a whole will grow 8.3% between 2010 and 2020… But the number of Americans older than 65 will grow 35.3% in that same period… As Doc wrote in his original Eli Lilly recommendation in June 2011…
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Companies that provide quality health care goods and services at fair prices to this aging U.S. population should make a fortune, no matter what happens in Washington… More elderly people means more money spent on health care. Unless everyone starts following my recommendations for walking, yoga, meditation, and diet, these demographic patterns mean an explosion in the use of pharmaceutical drugs for the elderly… |
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Older people use three to four times the amount of prescription drugs as folks under 50. |
Doc says, "It's hard to imagine how big health care will be."
Retirement Millionaire subscribers have pocketed 35% gains on Eli Lilly in just one year... And they've collected nearly $4 a share in dividends.
Take a look at the rest of our "new highs" list below... It's filled with high-quality companies that (with the exception of Berkshire Hathaway) pay healthy dividends. Hershey, which Porter predicts will be the best stock recommendation in his career, pays a 2.2% dividend. Altria Group pays a 4.9% dividend. And both companies are resistant to a downtown in the economy... People will smoke and eat chocolate regardless of what's going on around them.
Our friends at The Palm Beach Letter made one of the boldest calls in the newsletter industry. And it's working in their favor...
The prediction was simple: That Apple would buy Yahoo in 2012... and hand Yahoo shareholders a huge payout… overnight.
Most people think Yahoo is a struggling Internet search engine and e-mail operator. What they don't realize is Yahoo owns investments in two other giant companies worth more than $18 billion. It holds more than $2 billion in cash and no debt.
One of these businesses is Alibaba, the Chinese equivalent of eBay. The other is Yahoo Japan, Japan's equivalent of Google.
At its current price of around $15.50 per share, Yahoo has a market cap of $19 billion. By buying today… you get $20 billion worth of investments and cash. Plus, you're getting Yahoo's e-mail and Internet business for free.
As Palm Beach Letter editor Paul Mampilly points out, something else that most people don't know is that Yahoo and Apple are neighbors in Cupertino, California. Their headquarters are three miles apart. And Steve Jobs was a big fan of Yahoo.
In 2007, Jobs did former Yahoo CEO Jerry Yang a favor and spoke to some Yahoo employees to motivate them. "Yahoo can be anything you want. Seriously. You have talented people and more money than you could possibly need," he told them.
Also, in his keynote speech introducing the iPad, Steve Jobs specifically mentioned Yahoo Mail as the best e-mail app.
And most important, says Paul, Yahoo's e-mail client, search engine, and online advertising platform could be useful additions to Apple's business model… especially if Apple decides to engage Google in "thermonuclear war," which Steve Jobs promised in his autobiography.
So it makes a lot of sense that Apple – or another large media company – would buy Yahoo.
Of course, takeovers are notoriously hard to predict... And there are no guarantees that this deal will happen. But what makes this case so interesting is even if there's no deal, it's difficult to see how you can lose money buying Yahoo. At $15.50 per share, it holds more than $20 billion in assets, yet the stock market is only valuing it at $19 billion. Plus, the business generates $1.3 billion-plus per year in operating cash flow, so it's making money all the time.
When Paul Mampilly and his team at the Palm Beach Letter made this prediction, people said they were crazy… "He needs to check himself into an insane asylum as soon as possible," said one message-board poster.
Still, they've faithfully followed this story. Now… finally… it looks like something's beginning to happen. Yahoo recently got a new CEO (the old one, Scott Thompson, was forced to resign for putting false credentials on his resume) and four new board members. One of the new board members is Dan Loeb, who runs the hedge fund Third Point. He's Yahoo's largest shareholder. Loeb is well-known for extracting value from beaten-down companies... Already, he's responsible for ousting former CEO Thompson and gaining board seats for himself and his colleagues.
On May 21, after months of negotiations, Yahoo finally struck a deal to sell half of its 40% stake in Alibaba back to its parent company, Alibaba Group. It's going to get $4 billion in cash after paying taxes to add to its balance sheet, along with $800 million in Alibaba preferred stock.
The stock jumped on the news... and has strung together a short-term series of "higher highs and higher lows." It looks poised to break out to fresh multi-month highs. Paul says the stock is still a tremendous low-risk/high-reward trade right now. And it's a story we are following closely.
The Palm Beach Letter is becoming one of our favorite newsletters. (Full Disclosure: We have a financial interest in the business.)
Many Digest readers know one of our former top analysts, Tom Dyson, heads up The Palm Beach Letter. One of Porter's mentors, Mark Ford, is also heading up the project. As we've mentioned in the past, most people who know Mark think of him as a multimillionaire business guru. He's built dozens of successful businesses... And his books on business and wealth are bestsellers. But Mark is a born teacher. That's why readers of The Palm Beach Letter receive a priceless education on wealth, asset allocation, real estate, stocks, and bonds. It's education you can't buy from a school. You can only get this stuff from someone who has done it over and over... who has made many mistakes and enjoyed many successes.
Mark's ideas, like his classic "Letter to a 47-Year Old," are a revelation to most people. These ideas have helped thousands of people achieve financial freedom.
The Palm Beach Letter has just completed its one-year anniversary as a publication. To celebrate this achievement, Mark, Tom, and company are offering an extra 25% "anniversary discount" on top of the 50% discount they were already offering for a subscription to the Palm Beach Letter.
Plus, Tom and Mark are so confident in the quality of their low-risk/high-reward ideas… like Yahoo... and their wealth education that they have made one of the greatest guarantees in the financial industry...
If at any time during your subscription term you decide The Palm Beach Letter is not for you, simply call The Palm Beach Letter's customer service team and it'll refund every penny you've paid toward your subscription – even if it's on the 365th day!
Click here for full details... and to see everything that comes with your Palm Beach Letter subscription.
New 52-week highs (as of 6/15/12): Berkshire Hathaway Class B shares (BRK-B), Eli Lilly (LLY), Dominion Resources (D), Integrys Energy Group (TEG), Hershey (HSY), Hatteras Financial (HTS), and Altria Group (MO).
We received loads of positive feedback about Porter's Friday rant about GM. For more timeless essays from Porter, make sure to read Sunday's Masters Series essay, "This is Why There are No Jobs in America." It's one of the most popular pieces Porter's ever written. Send us your thoughts here... feedback@stansberryresearch.com
"You deserve a Pulitzer Prize for this crystal clear analysis and scathing expose of the corrupt Obama administration, and how it is destroying America economically. This article should be sent to Presidential candidate Romney, who has been pilloried for his insistence that the bailout of GM was the wrong way to go. Perhaps this article would enable him to better articulate his position. I only hope that Obama receives his just rewards and all his corrupt, political machinations to empower the UAW will fail, as Michigan will vote for a 'favorite son' in Romney, come the November elections." – Paid-up subscriber Michael L Kuskin
"I worked at GM for 26 years, I sustained a permanent shoulder injury, my plant closed, I am back in college for IT. I am now retired, getting a portion of my pension and am smart enough to know that this type of system can't continue. Pension obligations will destroy not only GM but most government budgets also." – Paid-up subscriber Kelly Ten Harmsel
"I'm currently deployed, own a small sewer and drain cleaning business in the Twin Cities as a private citizen, and had to get a new van last year. I purchased a Ford. Need I say more?" – Paid-up subscriber John Giese
"Please give up on the golf analogies. You just rub it in as being rich. Why don't you use a yachting analogy as well. As far as Junior Minors, I have a couple of majors (goldcorp, coeur) that I bought as what were considered minors over 30 years ago, albeit I lost everything on just about everything on everything else. So you are correct in general." – Paid-up subscriber Merle
Porter comment: I suppose you'd rather subscribe to investing insights from a poor person who's never been anywhere... doesn't know anyone... and hasn't accomplished anything in life?
Regards,
Sean Goldsmith
New York, New York
June 18, 2012