I enjoyed speaking at the annual Stansberry & Associates Alliance meeting this week at the Bacara Resort in Santa Barbara, California.
When it was my turn, I told the attendees about the American Industrial Renaissance. That's the huge change happening in American industry, due to abundant new supplies of natural gas and natural gas liquids like ethane, propane, butane, and other chemicals found in association with natural gas.
These new supplies make the U.S. the second-lowest-cost maker of ethylene in the world. Ethylene is one of the primary building block chemicals of the modern world. It's all around you in clothing, tires, shoes, carpets, window frames... you name it.
Huge companies like Dow Chemical, Bayer Material Science, Royal Dutch Shell, Nova, and Westlake Chemical are all scrambling to build new ethylene plants near large U.S. supplies of raw material.
In Extreme Value and The 12% Letter, we've already found three stocks that are benefiting from this trend. They were all up big double-digit returns for the year, even at the bottom of the recent market drop.
I was scheduled to head home Monday night, then fly to New York to attend the fall Grant's Conference, which took place yesterday.
But a bomb scare at the Santa Barbara airport kept that from happening, so I'll have to wait until Grant's spring event. To my knowledge, no bomb was ever found.
ExxonMobil has been firing on all cylinders lately...
The World Dominator of the oil industry announced a $10.33 billion profit, a 41% increase over the previous quarter. Higher oil prices and thicker refining margins were credited with the blowout performance. Profit for the first nine months of 2011 was $31.7 billion, a 61% increase over the same period last year.
A few weeks ago, ExxonMobil confirmed it is active in the Utica shale, a large formation neighboring the Marcellus shale in New York and Pennsylvania. Exxon picked up more than 700,000 acres in the Marcellus when it bought XTO Energy last year.
ExxonMobil wouldn't state the size of its Utica position or say what it paid to get there. But one press report claimed it had paid around $4,950 per acre, plus a 19% production royalty.
You're going to see more and more big oil and gas companies scrambling to take part in the North American energy boom. Multiple speakers at the Alliance meeting commented on the huge new abundance of oil and gas in the U.S.
Perhaps nowhere is the new American energy boom so evident than in the Bakken shale region in North Dakota. Up there, I hear strippers are making $2,000 in a single night, and waiters and waitresses are making $25 an hour in not-so-fancy restaurants. Oil workers can make $100,000 a year. It won't last forever. It never does. But these folks are making hay while the sun shines.
At the Value Investing Congress last week in New York, Jim Chanos reiterated his ExxonMobil short position. He calls the World Dominator of the oil industry a "liquidating trust" because he says it's not replacing its reserves. Well... he did admit that its reserves would have shrunk if it hadn't bought XTO Energy. That sounds to me like he's saying its reserves would be shrinking... if they weren't growing.
About a year and a half ago in Extreme Value, I showed exactly why Chanos is wrong. He's not measuring reserves per share, which have risen. And he's not taking into account the cyclical nature of the business or that ExxonMobil is good at making capital allocation decisions to maximize the cycles. ExxonMobil made huge amounts of cash during oil's run up to more than $150 a barrel in 2008. It used cash to take equity off the table through massive share repurchases. Then, it waited until the market crashed to pick up XTO Energy. It called in capital when prices soared and deployed it when prices fell and sentiment retreated. That's what it's supposed to do.
I love the fact that so many smart investors hate ExxonMobil. "It's too big... It's can't replace reserves... It's a cult..." I've heard it all. None of it is true, of course. ExxonMobil is simply one of the best-run businesses around. Considering it's in the capital-intensive, highly cyclical oil and gas industry, that's really saying something. I've been recommending and writing about ExxonMobil since July 2006. It was the second World Dominator stock I ever recommended (after Berkshire Hathaway in 2005).
Intel is another World Dominator stock doing really well lately. It's hitting new 52-week highs again today. An Alliance meeting attendee who worked for Microsoft for 10 years told me Microsoft and Intel were "done." I said maintaining 90% and 80% global market shares, respectively, and achieving record sales and profits were odd ways of demonstrating a loss of dominance.
Achieving record profits tells you something that most folks simply refuse to acknowledge. PCs are more popular than ever. Intel just had its highest-selling, most profitable quarter ever on strong PC and server sales. Having failed to participate meaningfully in smartphones and tablets, we're supposed to believe Microsoft and Intel are all washed up... But the numbers tell a completely different story.
When will the demise of Microsoft and Intel ever show up in their financial results? When will Windows stop achieving new sales records? When will Intel stop logging record quarters and lose its 80% global market share?
Have you noticed that Microsoft and Intel don't lose market share? Hewlett-Packard is like that, too... And it's selling for about six times earnings... with a brand-new CEO (unlike Microsoft, which could use a new one, too)... Hmm...
It's clear Europe is about to toss trillions of dollars into the economy. (See today's End of America watch box.) How should you protect yourself? Own gold and silver, of course. And you may want to consider the world's largest payment processor. In June 2009, Porter explained why Visa is a good hedge against inflation...
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Visa operates the world's largest retail electronic payments network and manages the world's most recognized global financial services brand. Visa has more branded credit and debit cards in circulation than anyone else. |
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And... this is the key: The financial institutions that license their brand do so on the basis of transaction volume. The more money people spend on their Visa-branded debit and credit cards, the more money Visa earns. (This is important: Visa doesn't hold any of the debt put on those cards. It merely licenses the brand and receives a fee for processing the transactions.) |
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Ergo, the more money that exists, the more money Visa will make. It's perfectly correlated to inflation. And Visa has the most to gain from inflation out of all of the credit-card networks because it is the largest, by far. Last year, Visa processed more than $3.8 trillion from more than 50 billion separate transactions. American Express processed 5 billion transactions worth $647 billion. – Porter Stansberry, Stansberry's Investment Advisory, June 2009 |
Yesterday, Visa announced a 14% increase in net quarterly income to $880 million, or $1.27 a share. Analysts expected $1.25. According to Bloomberg, Visa has exceeded estimates every quarter since its March 2008 initial public offering – perhaps because these analysts have no idea just how fast the government is printing money...
Worldwide spending on Visa credit and debit cards increased 17% to $970 billion. And processed transactions worldwide jumped 9% to 13.3 billion.
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New 52-week highs (as of 10/26/11): Enterprise Products (EPD), Intel (INTC).
In today's mailbag… a couple lifetime members write in about the Alliance conference in Santa Barbara. Were you there? What were the best ideas you heard? Write us at feedback@stansberryresearch.com.
"This was my first Alliance conference and I want to let you know that I really enjoyed and appreciated this first class event. The Alliance was the best investment decision I've made." Paid-up subscriber Mike
"I just wanted to drop a note saying how much of an education I have received from your services. I am a new Alliance member (less than 6 months) and becoming a member was by far one of the best investments I have made in my education. I am a CPA and also an Investment Advisor. I was thinking of going back to school to get more education on the financial markets and economy.
"In March of this year a client called me and told me to listen to the End of America Video. I did and I have thanked this client many times over for the recommendation. I believe that the education that you have given me over the last 6 months has been far beyond what any educational institution could have given me. You and your team deal in reality not theory. I feel as if I am in the street with you as I read the information I get daily from your team. No BS, just real life stuff you can take with you and actually do something with.
"One last note, I attended the Alliance conference in Santa Barbara and thought it was awesome. You really know how to put on an incredible event. Getting to know some of the other Alliance members was also a pleasure. I met some very easy going, real people. With regards to Porter's opening comments I will say one thing came to mind and it is this – In the movie Jerry Maguire, Dorothy (Jerry's girl) said to Jerry that 'You had me at hello'. Well Porter you had me at 'Who the f*ck are you?' Thanks for a great time and your incredible service." – Paid-up subscriber David Del Sesto
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
October 27, 2011
Santa Barbara bomb scare... XOM firing on all cylinders... Why Chanos is wrong about XOM... The (nonexistent) demise of Intel and Microsoft... Boosting the stability fund... Writing down Greece (a little bit more)... EU plan 'short on detail'... Porter's Visa recommendation... Doc Eifrig's perfect track record...