The cost of a suit in Milan... McDonald's European 'problem'... The Wall Street Journal picks up our idea... We need a favor... A special e-mail about our current favorite gold stock...
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I'm in Italy this week for business. I arrived in Milan on Sunday. It feels like the calm before the storm. While most people recognize Milan as one of the world's fashion capitals, it's also the banking and industrial heart of Italy. The national stock exchange is located here.
Last night, I walked around Milan's most exclusive neighborhood – the area around Via Montenapoleone. Like Fifth Avenue in New York... this neighborhood is home to some of the best clothing shops and restaurants in the world. Yet during my walk, the area was deserted. I went entire city blocks without seeing another human.
At Al Bazar – one of Milan's finest clothing stores – I asked the salesman how much his average suit costs. He said around 900 euros (approximately $1,200). If you stick by the old adage that a fine men's suit should cost approximately an ounce of gold (which is currently above $1,600), that's relatively cheap. And considering many suits in New York sell for more than $4,000, it's actually a very reasonable price.
The salesman said Al Bazar had to cut prices this year. Nobody is spending money. Those who don't have money can't spend it. Those who do have money are hoarding it... and are worried about conspicuous consumption. A business associate I'm traveling with has been coming to Milan for 30 years. He was amazed at how dead the city felt... and how cheap everything was. Still, prices will get cheaper...
I'm writing today's Digest from the Excelsior hotel in Florence. The Excelsior is on the Arno river in the middle of Florence. It's arguably the grandest hotel in the city. This week, it's full... Madonna is filming something in the square out front. Her fashionable assistants are scurrying back and forth across the lobby as I write this. And Pitti, a fashion trade show, is taking place this week.
Despite the bustle... I asked the hotel concierge if the country's economic slowdown has hurt business at the hotel. He looked at me like I was nuts: "Absolutely!" He couldn't give me a specific number, but said there's a noticeable fall in business. He said Italians are earning less money and spending a smaller percentage of what they do earn. It's clear from every local I've spoken to about the crisis that people are terrified.
In March, shares of McDonald's took a hit after reporting sales below analyst estimates. McDonald's February sales only grew 7.5% globally. Analysts had hoped for 7.7%. Europe is McDonald's largest market, followed by the U.S. The company's European sales increased 4%. Analysts expected 6%.
We think analysts' estimates are crazy. Who cares about the quarter-to-quarter sales of a wonderful business like McDonald's? It's already head and shoulders above all its competition. Still, sales figures drive markets in the short term. And McDonald's shares have steadily fallen since the revenue miss...
McDonald's was the busiest restaurant I saw in Milan. Every location was packed. One particular McDonald's, in a popular shopping area, had a patio area. I'll bet more than 200 people were eating there.
Contrast that to the high-end area I visited... If folks run out of cash, McDonald's is an inexpensive option. If things recover, Europeans will continue buying burgers, fries, and Coke. McDonald's is still the most dominant restaurant in the world. And it pays a 3%-plus dividend. We're happy to wait out this little share price hiccup, and earn nearly double the rate on 10-year Treasurys while we do.
We've spent a lot of time in these pages recently discussing Frank Curzio's "Eagle Diesel" thesis... Frank, who writes our Small Stock Specialist newsletter, believes the glut in natural gas – and subsequent low prices – will lead it to become a major transportation fuel in the U.S. On Monday, the Wall Street Journal picked up the story...
The article, titled "America, Start Your Natural-Gas Engines," laid out the pros and potential roadblocks for natural gas as a transportation fuel. I encourage you to read the article... We believe this could be one of the biggest investment trends of our lifetime...
Transportation accounts for 70% of the oil consumed in the United States. And transportation creates 30% of our greenhouse gases – the current boogeyman of the "climate control" crowd. Natural gas would free up oil for other uses, and it would reduce emissions... So there will be a lot of political support for this shift...
And right now, thanks to massive shale-gas reserves, the U.S. has an abundance of gas. "This abundance of natural gas is something we weren't expecting as a country, but it's here now. And it's a gift we should take advantage of," said Steven Mueller, CEO of natural-gas producer Southwestern Energy. "There's huge savings here and a way to help the environment."
The problem with building natural-gas vehicles is they're more expensive than traditional vehicles. Because natural gas must be stored under high pressure, the tanks must be stronger, heavier, and larger. The price increase for the Honda Civic GX, the only natural-gas passenger car sold in the U.S., is around $5,200. According to an analysis by MIT professor Christopher Knittel, it would take the average person nine years to recoup that money through fuel savings.
Despite the high costs, Chrysler Group and GM have already committed to building natural-gas-powered pickup trucks.
And earlier this year, 3M announced a partnership with natural gas company Chesapeake Energy to develop a more cost-efficient natural-gas fuel tank.
Still, the biggest hurdle to the adoption of natural gas as a transportation fuel is the lack of natural-gas fueling stations. Currently, the U.S. has only 1,500 natural-gas fueling stations... Of those, only half are available to the public. Meanwhile, there are 118,000 public gasoline stations.
Frank's Eagle Diesel picks are soaring on news of the 3M and Chesapeake partnership... In total, he recommended six companies to take advantage of this mega trend. They're up an average of 16% in the past two months... And some are still in buy range.
To sign up for Small Stock Specialist and access Frank's Eagle Diesel recommendations (without watching a long video), click here... You'll only pay $39 for one year. And if you decide you don't like it, let us know in the first four months and we'll refund your money, no questions asked.
We take a break from our normal Digest fodder to ask a quick favor from you, dear reader... We are creating a special report on alternative ways to generate significant income – using such investments as tax-lien certificates, royalty stocks, timber stocks or timberland, and mortgage REITs (like Annaly, Hatteras Financial, and Two Harbors).
We'd like to highlight your individual experiences with these types of alternative assets. If you have invested in these methods of generating income and wouldn't mind telling us about your experiences, please send us a brief note describing…
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1. How these alternative income assets have compared with other methods of generating income that you've tried. |
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2. What you would say to someone who has never tried this type of investing before. |
PLEASE NOTE: We will never use your real name in any of our editorial or marketing efforts. Again, you can send your response by clicking here.
Thank you for your help. We look forward to hearing from you soon.
For the past couple of weeks, we've been discussing our current favorite junior gold stock... We think this company will be taken over at a rich premium from today's price. If you haven't read about this opportunity in the Digest, we're sending you a special e-mail with all the details tonight. If you don't want to wait, you can read the details here...
New 52-week highs (as of 6/19/12): Berkshire Hathaway (BRK), iShares Nasdaq Biotechnology Fund (IBB), Eli Lilly (LLY), Dominion Resources (D), Integrys Energy Group (TEG), Hershey (HSY), Union Pacific (UNP), CVS Caremark (CVS), and Altria Group (MO).
Do you have any "boots on the ground" knowledge of the European crisis? Send us your stories here... feedback@stansberryresearch.com.
"Excellent report on the shift to natural gas to power trucks, etc., and how this will play out with passenger cars. Frank Curzio is to be commended. I will be taking positions in some of the stocks he recommends." – Paid-up subscriber Bill Deiz
"Hey! I'm 'only' up 5.5% on GDX based on the DailyWealth Trader recommendation! :-) I bought it at 45.18." – Paid-up subscriber Joe Orost
"I am an investor. I started investing in 1974 by purchasing hand tools to repair automobiles for currency and have continued this process to this day. I started saving in 1980 at a very meager rate and needless to say started and raised a family in the process.
"I do not subscribe to your Data sheets for stock tips. I respect you for your integrity and point blank honesty in your efforts to allow me to learn how to make a lifetime of physical labor pay dividends in steady reliable methods. I read very closely your teaching wisdom. I have never really sought to become rich because I have been happy. In taking the middle road, I only regret not having or taking the time twenty years ago to otherwise position a portion of my net worth for better returns as the dollar now is not equal to what required to earn it. But I retain belief that I will continue generation. It was fate and timing I found you when I did which is simply my sophomore year as your study. Thank you for this opportunity enablement." – Paid-up subscriber Joe Vieger
Regards,
Sean Goldsmith
Florence, Italy
June 20, 2012