Porter Nails Another Call

Earnings season is underway... Doc's readers are up big on Boeing... McDonald's reports blowout earnings... Porter nails another call... In the mailbag: Where to buy 'junk silver' and how to bet on higher volatility...

Second-quarter earnings season is well underway...

And one of the most notable reports to date came from Retirement Millionaire recommendation Boeing (BA) this morning.

Shares of the aerospace and defense behemoth surged nearly 10% today – its biggest single-day gain since 2009 – after the firm announced much better than expected results. As news service Reuters reported...

Boeing's revenue fell by 8% in the quarter as it cut production of 777 widebody jetliners and delivered fewer 737s. But those cuts were planned, and through reduced spending – by streamlining production, shedding 6,500 jobs and winding down development costs – Boeing dramatically improved profit and cash flow...

The company's cash from operations, at nearly $5 billion in the quarter, was roughly double estimates of about $2.5 billion... "Monster cash flow," said analyst Robert Stallard at Vertical Research. The results were "about as close to perfect as it gets from Boeing," he added.

The company reported a profit of $1.8 billion, or $2.89 per share, compared with a loss of $234 million, or $0.37 per share during the second quarter last year. Analysts had expected earnings of just $2.30 per share, according to data from intelligence firm Thomson Reuters.

Boeing's big bet is now paying off...

Boeing attributed much of this growth to the increasing profitability of its state-of-the-art 787 Dreamliner. This plane took Boeing years longer than expected to develop... and ended up costing the firm billions of dollars in the process. But it appears this bet is now paying off. More from Reuters...

The 787 Dreamliner contributed $531 million of the increase, the second-largest amount in the six years since Boeing started delivering the carbon-fiber planes. Chief Financial Officer Greg Smith said investors can expect at least that level of cash in the future.

Of course, Retirement Millionaire subscribers may recall this is exactly why Dr. David "Doc" Eifrig originally recommended shares nearly two years ago. As he wrote in the September 2015 issue of Retirement Millionaire...

I recently had the chance to walk through a mock-up of the Dreamliner cabin at the Bush Intercontinental/Houston Airport. And I can tell you, the jet is amazing.

But the project that brought it to life was a disaster...

Boeing outsourced many parts of the plane and production fell way behind schedule. Costs soared. The first planes were delivered three years late. The company's "accumulated losses" on the 787 project total about $27 billion.

Now, we're at the turning point...

While the design, development, and production of the 787 Dreamliner was a catastrophe, the end product has been an unqualified success. And thanks to the way that the accounting works with big projects like this, that success will start to show up in the company's financial statements in the near future in the form of a big surge in cash flow...

Over the next year, cash from 787 sales will start to pad Boeing's financials.

Less than two years later, folks who took Doc's advice are up 70% as of today's close.

Of course, Boeing is more than just a commercial-airplane builder. It's also among the largest supplier of planes and helicopters for the U.S. government. If U.S. military spending ramps up as Doc expects, Boeing will benefit from this massive trend, too.

'Our strongest results in more than five years'...

Stansberry's Investment Advisory recommendation McDonald's (MCD) reported second-quarter earnings yesterday. And the fast-food giant delivered impressive results as well...

The company reported better-than-expected revenues and earnings for the third consecutive quarter. Revenue came in at $6.05 billion, compared with estimates of $5.96 billion. Profits rose to $1.70 per share from $1.25 in the second quarter of last year. Analysts had expected just $1.62 per share, according to research firm FactSet.

Most notably, the strong growth in "same-store sales" – sales at stores open for at least one year – continued.

Despite continued headwinds for the entire restaurant sector, McDonald's reported U.S. same-store sales rose 3.9%, far more than estimates of 2.9%-3.2%. Meanwhile, global same-store sales surged 6.6%.

The company pointed to a renewed focus on price and convenience as a key driver of growth this quarter. As the Wall Street Journal reported...

"It's a market-share fight," Chief Executive Steve Easterbrook told investors on Tuesday, saying McDonald's has won back some customers after deciding that price promotions were a way to quickly boost traffic...

McDonald's has been introducing new menu items priced with its core budget-conscious customers in mind and adding more conveniences like self-order kiosks, food delivery and a mobile order and payment app. It has also been remodeling many of its restaurants. Those moves are all longer-term changes the company said it hopes will keep customers coming back...

McDonald's recently found that most of the consumers it had lost in recent years had defected to rival fast-food chains serving cheaper food rather than the higher-priced fast-casual restaurants it had been trying to emulate with healthier items such as salads and snack wraps.

According to Easterbrook, these results confirm that his turnaround plan is working. As he said in a statement following the announcement Tuesday morning...

We're building a better McDonald's and more customers are noticing. For the quarter, we delivered our strongest global comparable sales and guest count results in more than five years...

Today, we're acting like a leadership brand, taking on new challenges and opportunities and moving with a greater sense of purpose and urgency. I'm confident that we're on the right path to continue positively impacting sales, guest traffic and customer satisfaction as we work to bring the biggest benefit to the most people in the shortest possible time.

'Brands like McDonald's don't just go away'...

In short, it appears that Easterbrook may have finally righted the ship, just as Porter predicted he would. As Porter wrote in the April 10, 2015 Digest, when the company was still suffering from years of stagnant growth...

Incredibly, over the last three years (all of which came during the previous CEO's reign), McDonald's was able to return more than $15 billion to its investors via dividends and share buybacks... without growing. Even at this reduced pace, McDonald's shareholders will receive capital returns (via dividends and buybacks) equal to the entire value of the company today in about 17 years.

Of course, it won't actually take that long. The new management team will reboot the company's franchise. Perhaps it will buy growing burger chain Shake Shack, similar to its previous stake in burrito chain Chipotle. Or maybe it will create some new product or promotion that takes off. Brands like McDonald's don't just go away. They come back. There's a big growth spurt at least once a decade. And when that happens, these cash distributions will soar...

So far, investors who bought McDonald's way back in 2006 – again just before the worst financial Armageddon of our lifetimes – have already made nearly 200% on their money. I'm confident that based on McDonald's current share price, similar (or even superior) returns are currently available to any investor wise enough and patient enough to buy McDonald's stock today.

There's essentially no risk to this investment at this price given McDonald's brand, locations, price point, margins, and capital efficiency. So... if you're looking to protect your wealth... look no further than the oldest recommendations still sitting in our Top 10 list.

McDonald's shares closed at another all-time high of nearly $160 on Tuesday. Digest readers who took Porter's advice are now up nearly 75% in a little more than two years.

New 52-week highs (as of 7/25/17): AllianceBernstein (AB), American Financial (AFG), Amazon (AMZN), Boeing (BA), iShares MSCI BRIC Fund (BKF), CBRE Group (CBG), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), Euronet Worldwide (EEFT), Emerging Markets Internet & Ecommerce Fund (EMQQ), iShares MSCI Italy Capped Fund (EWI), iShares MSCI Singapore Capped Fund (EWS), iShares Core S&P Small-Cap Fund (IJR), PureFunds ISE Mobile Payments Fund (IPAY), iShares U.S. Aerospace and Defense Fund (ITA), JD.com (JD), iPath Bloomberg Copper Subindex Total Return Fund (JJC), KraneShares CSI China Internet Fund (KWEB), McDonald's (MCD), AllianzGI Equity & Convertible Income Fund (NIE), NVR (NVR), ProShares Ultra S&P 500 Fund (SSO), TransCanada (TRP), TTM Technologies (TTMI), ProShares Ultra Financials Fund (UYG), and Verisign (VRSN).

A busy day in the mailbag... more on "junk silver"... an unusual question about brokers... and two subscribers want to bet on higher volatility. Send your questions, comments, and concerns to feedback@stansberryresearch.com.

"Nine years ago today (it just so happens to turn out) I bought a bag of $1000 face value 'junk silver.' It was an insurance policy, plain and simple. While I am down a little from what I paid (but far less than the total I've spent on car insurance over that time frame, let alone life insurance and house insurance!), I'm very happy with the investment. Here are the specific reasons:

"(a) I can always spend the coins at face value; I always will have $1,000. That'd be more than a 90% loss, but it isn't 100% 🙂

"(b) It's just over 715 oz. of silver, a useful industrial metal, bought at a smaller premium than Silver Eagles.

"But the most important reason I chose 'junk silver' is...

"(c) When the proverbial s**t hits the fan, I think having silver US currency IN SMALL, RECOGNIZABLE FORM would be far more worthwhile to have than, say, a one ounce gold coin – or bars of any metal... 'This quarter was minted in 1964 and is 90% silver. Back in 1964, a loaf of bread was 25 cents [WAG]. I'll trade you this quarter for your loaf of bread...' Try doing that with a Gold Eagle! (You'll end up with a LOT of bread!! 🙂 )" – Paid-up subscriber Carl S.

"Do you have any recommendations on where to purchase the 'junk silver'?" – Paid-up subscriber Dominic Marconi

Brill comment: As we've mentioned, when it comes to bullion and junk silver, you want to pay the lowest premiums possible. So feel free to shop around. That said, it's important to buy from a reputable dealer you can trust. Here are a few we can recommend, in no particular order...

Asset Strategies International
1700 Rockville Pike, Suite 400
Rockville, MD 20852
Phone: 800-831-0007 or 301-881-8600
Fax: 301-881-1936
E-mail: rcheckan@assetstrategies.com
Website: www.assetstrategies.com

Camino Coin
1301 Broadway Avenue
Burlingame, CA 94010
Phone: 800-348-8001 or 650-348-3000
Fax: 650-401-5530
E-mail: parker@caminocompany.com
Website: www.caminocompany.com

Gainesville Coins
17860 N. U.S. Highway 41
Lutz, FL 33549
Phone: 813-482-9300
E-mail: sales@gainesvillecoins.com
Website: www.gainesvillecoins.com

If you're interested in rare or "numismatic" coins in addition to bullion, we'd also suggest contacting Van Simmons at David Hall Rare Coins...

David Hall Rare Coins
P.O. Box 6220
Newport Beach, CA 92658
Phone: 800-759-7575 or 949-567-1325
E-mail: info@davidhall.com
Website: www.davidhallrarecoins.com

As always, we receive no compensation for recommending any of these dealers. They've just treated our customers well over the years.

"My broker, Scott & Stringfellow, does not handle options. Do you have any recommended brokers?" – Paid-up subscriber Carl Gardner

Brill comment: We don't recommend brokers, but practically any online or discount broker offers options trading today. Frankly, we're surprised some still don't. We've personally used Fidelity, TD Ameritrade, and Interactive Brokers. But it doesn't hurt to shop around for the lowest commissions or preferred features.

"According to several of Stansberry publications the VIX will rise at the first sign of a decline of the market. How do we bet on the VIX doing that?" – Paid-up subscriber Peter Rell

"I believe in Porter's Big Trade and have been in/out of various positions recommended since it launched with a substantial position intact. I agree that the VIX will eventually 'pop', so why not take advantage of the low volatility in anticipation of the VIX surging higher by buying some ETF [like VXX] or other instrument to profit from a big 1-3 day bounce. I know it is speculative, but is seems like it would be worth a small risk..." – Paid-up subscriber Robert Kyslinger

Brill comment: One look at a chart of the fund you mentioned – the iPath S&P 500 VIX Short-Term Futures ETN (VXX) – should answer your question. Over the last five years, the VIX itself has fallen about 50%. But VXX has lost more than 98% of its value in that time.

Simply put, these instruments do a terrible job of tracking volatility. Because they're constantly buying and "rolling" near-term VIX futures, they consistently lose value over time. To profit from them, your timing must be nearly perfect. You must buy them just before volatility spikes and sell immediately after.

For example, if you had bought VXX on May 16 – the day before this spring's "mini panic" – you would've made a quick 18% as the market fell. But if you didn't sell that day, your gain would've disappeared within two days. Just one week later, you'd be underwater. And if you were still holding, you'd be down more than 20% today.

We'd much prefer to take advantage of today's record-low volatility by buying cheap, long-dated put options that give us plenty of time to "be right." Or – better yet – by buying cheap, long-dated put options on troubled companies that are likely to struggle no matter what the broad market does.

Regards,

Justin Brill
Baltimore, Maryland
July 26, 2017