In the March 2011 issue of True Wealth, Steve Sjuggerud proclaimed it was "the best time in history to buy a house."
It was a bold statement… At the time, housing was hated. But houses in the U.S. were more affordable than at any point in history. And you could get a mortgage at record-low rates. (That's part of the "affordability" calculation.) Plus, many homes were selling at huge discounts to replacement value.
Since Steve first recommended housing, home prices in the U.S. have rallied 15.7%.
And while we've spent lots of time discussing the steadily rising home prices and improvements in homebuilder sentiment, we haven't discussed the soaring price of a major homebuilding input – lumber.
As the market absorbed the supply of existing homes – supply is currently around a six-year low of 5.4 months – builders started constructing more new houses. And that means they're buying more wood…
Today, U.S. lumber prices are trading near eight-year highs. Lumber rose nearly 45% in 2012. As of Friday, lumber futures contracts for March delivery are $380 per 1,000 board feet on the Chicago Mercantile Exchange. That's very close to the recent $400 highs of late December.
And the trend should continue... "We're at the beginning of a long upward cycle in the housing market," Paul Jannke, principal at consulting firm Forest Economic Advisors, told the Financial Times. "Total consumption of lumber in the U.S. will be up 10%-15% a year for the next three years at least. Demand is still well below historic levels."
In addition to stronger housing demand, lumber prices have also been helped by the shuttering of several production facilities following the crash. And a mountain pine beetle epidemic is harming the lumber in British Columbia.
In tomorrow's Digest Premium, we'll discuss some of our favorite ways to profit from the rise in lumber prices... It's one of the safest asset classes we know, and you can secure a big, healthy stream of dividends.
Housing boom sends this asset soaring…
The housing boom Steve Sjuggerud predicted is heating up… and in today's Digest Premium, we discuss one asset that should be a prime beneficiary…
To continue reading, scroll down or click here.
Housing boom sends this asset soaring…
Housing boom sends this asset soaring…
The housing boom Steve Sjuggerud predicted is heating up… and in today's Digest Premium, we discuss one asset that should be a prime beneficiary…
To subscribe to Digest Premium and access today's analysis, click here.
The highest grade Porter gives... A great strategy for 2013... Making money on the railroads... Oil companies building new rail facilities... Report Card feedback...
Porter published the first installment of our annual Report Card in last Friday's Digest. The Report Card is one of the most anticipated things we write each year...
Porter personally reviews and grades the annual performance of every service we publish... It's the most honest annual product review you'll find in our industry. We don't believe any of our peers in the financial publishing world deliver such a direct and candid opinion of their own work.
If you missed the Report Card, you can read it here. Porter will publish the next installment this Friday.
The big winner this year was Jeff Clark. His Advanced Income trading service received the highest possible grade of "A++."
In Advanced Income, Jeff uses a "covered call" strategy to show subscribers how to generate safe and consistent income.
Jeff's strategy is simple... He buys an undervalued stock and sells call options against that stock to collect immediate income. (The income is the premium you receive from selling the call option.)
Jeff described the benefits of this strategy this way to his Advanced Income subscribers in a video tutorial:
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[T]o tell you the truth, if you can only do one thing with options, selling covered calls against stocks makes the most sense. In fact, it's probably one of the most conservative strategies you can use, but it's one of the most consistently profitable strategies.
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To help you understand how selling covered calls works, I've excerpted a bit from a Growth Stock Wire essay Jeff wrote last Thursday. He outlined a specific trade from last May, when gold stocks were dirt-cheap. (Remember this point, we'll come back to it in a moment.)
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Last May, I recommended my Advanced Income subscribers buy shares of Iamgold (IAG) at $10.20 per share. At that price, IAG was dirt-cheap. The gold stock traded at less than five times earnings, paid a 2.3% dividend, had $2.86-per-share worth of cash on its balance sheet, and was sitting on a $21 billion mountain of proven and probable gold reserves. There just didn't seem to be much more downside risk to the stock.
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Then we sold the IAG September 11 covered call option against the shares. By selling the call option, we gave someone else the right to buy IAG from us at $11 per share if the stock closed above that price on option expiration day in September. For that right, we got paid $0.85 per share.
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In other words, for every 100 shares of IAG we bought at $10.35, we got paid $85 for agreeing to sell the stock at $11. That's like printing $850 of cash for a 1,000-share investment. It was an immediate payment, and we could spend it any way we wanted to – a new outfit, exercise equipment, a weekend getaway, or whatever.
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As it turned out, IAG was trading above $11 per share on option expiration day last September, and we ended up selling the stock for $11. That gave us an additional capital gain of $0.65 per share. So the total return – the option premium of $0.85 per share plus the $0.65 capital gain per share – ended up being $1.50 per share, or 18% in just four months.
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Now, you see how simple and profitable selling covered calls can be. And last year, Jeff made successful trades on several other gold-mining stocks...
The first trade he made last year was Paramount Gold. The stock was flat for the year, but Advanced Income readers made 43% over about seven months selling covered calls.
And they made 19% in just five months selling calls against Aurizon Mines. (The stock actually fell in value last year.)
Silver Standard Resources also fell in value last year, but Jeff's readers made 11% in six months selling covered calls.
Today, we have a similar setup... Gold stocks are once again dirt-cheap. Take a look at this chart of the Market Vectors Gold Miners Fund (GDX) – a basket of major gold-mining stocks:
Jeff says selling covered calls against cheap gold stocks will be one of the most successful trading strategies this year.
The railroad company BNSF, which is owned by Warren Buffett's holding company Berkshire Hathaway, last week forecast it would boost crude oil shipments by 40% this year. CEO Matt Rose said the boost is helping offset the decline seen in coal cargo. (Cheap and clean natural gas is displacing coal as an energy source in the U.S.)
Longtime readers have heard us talk about the massive growth in oil production in the U.S... and in particular from the Bakken oilfields. Oil production in North Dakota's Bakken has soared in recent years, from a little more than 100,000 barrels per day in January 2009 to 669,000 barrels per day this past November (the most recent data recorded by Bloomberg).
What hasn't grown at the same rapid pace are the pipelines to transport the stuff from field to refinery. As a result, the rail industry is one of the beneficiaries of resurgent U.S. oil production. As of August, railroads accounted for 46% of oil transportation out of the region of North Dakota and Montana where the Bakken lies. That's up from 23% in November 2011... which was up from 18% in September 2011.
Last January, Porter recommended another railway giant... Union Pacific. Here's what he said...
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We want to own economically sensitive, trophy-like properties in the United States. We recommended BNSF railway coming out of the last big deflationary scare in 2009, before legendary investor Warren Buffett bought us out six months later. Since BNSF is no longer an option, we'll go with the next best thing...
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Buy Union Pacific Corp. (UNP) up to $125. The $34.4 billion railroad is well-run, has a fortress balance sheet ($1.65 billion in cash), and is trading for less than 10 times cash earnings.
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Like BNSF, Union Pacific is also enjoying the huge uptrend in oil transportation via rail...
In the October 22 Digest, we highlighted Union Pacific's $1 billion record net earnings for the third quarter. At the time, CEO Jack Koraleski told the Bloomberg news service, "We have some real strength in our chemical business, in particular our crude-by-rail business."
Stansberry's Investment Advisory subscribers who bought the stock on Porter's recommendation are sitting on 19% gains, including dividends.
And this trend is only getting bigger... A group of pipeline companies – led by Plains All American Pipeline – recently announced it would spend around $1 billion on rail projects to increase the capacity of oil it can ship to refineries on the coasts. (Traditionally, these companies simply rented rail capacity.) For perspective, BNSF spent $400 million on rail terminals in 2012.
Producers and refiners like Devon Energy and Irving Oil say they'll send even more oil on rails to get it to the highest-paying refineries.
Refiners on the coasts typically pay Brent crude prices for imported crude. Brent crude is the international price benchmark and averaged $110.13 a barrel in the fourth quarter. West Texas Intermediate (WTI) – the U.S. benchmark – averaged $88.23 over the same period.
And increased rail capacity means producers can ship their cheaper, WTI oil to refiners normally paying a $20-a-barrel premium.
The American Assocation of Railroads, a trade group, estimates more than 200,000 train cars of oil will be shipped this year, the most since World War II. And around 1 million barrels a day of rail-unloading capacity is being built in the U.S. (more than double the current shipment level of 456,000 barrels a day in the third quarter).
New 52-week highs (as of 1/11/13): iShares Germany Fund (EWG), iShares Italy Fund (EWI), iShares High Yield Corporate Bond Fund (HYG), iShares S&P International Health Care Sector Fund (IRY), SPDR Barclays High Yield Bond Fund (JNK), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra S&P 500 Fund (SSO), Monsanto (MON), Hershey (HSY), American Financial Group (AFG), Travelers (TRV), Kohlberg Kravis Roberts (KKR), Becton-Dickinson (BDX), Southern Copper (SCCO), Two Harbors (TWO), CVS Caremark (CVS), Walgreens (WAG), and GenMark Diagnostics (GNMK).
We received loads of feedback about our annual Report Card (most positive, but some negative). We'll save the negative feedback for Porter to personally address. In the meantime... send your notes to feedback@stansberryresearch.com.
"After having read your report card, I believe that you are being too hard on yourself. Your Advisory is the letter that I anticipate the most (I subscribe to six). I believe that I have made more money with yours and Matt's letter than the others, even though they are rated the lowest on your list.
"When I first joined the Advisory, I wanted to buy everything that was recommended, but that can't be done. Somewhere in the process the investor has to ask of himself/herself, 'am I comfortable with this transaction and use some logic, insight and even some personal preferences.'
"I've kept in mind Steve Sjuggerud's axiom: 'never try to catch a falling knife.' Well, that goes not only for the price of the stock but also for the underlying product, service, or commodity it represents.
"Another test that I give the stock is to look at the calls. If the calls are at zero or slightly above, then it is an indicator of the demand for that stock or the potential for capital appreciation is questionable.
"True Wealth used to be my favorite letter, but Steve's investment strategies are a little too long term for my age and income needs. Yours and Frank's picks seem to produce results a little quicker. My biggest disappointment is the Small Stock [Specialist] newsletter. It started as Penny stocks, which was what I was looking for because of the leverage that it afforded, but now most of his picks are well over the $50.00 dollar range. I think a newsletter with Frank's original thesis is still very much needed." – Paid-up subscriber Charles A. Garfield
"You are a stand-up guy. One of the most transparent and honest businessmen I have ever seen. For the CEO of a company to set this kind of example for his employees, associates and clients, shows tremendous respect for each of these groups.
"I purchased my Alliance membership several years ago and it is one of my treasured assets. There is no hesitation to recommend Stansberry & Associates to my friends and family. Of course, I have my favorite writers/letters due to my age and resources, but each of them are outstanding.
"My fervent wish is that whatever blood type you've got flowing through your veins, you would share a pint or two with our Federal Government. I have never been more discouraged, perhaps outraged is a better word, than I am now with the insanity going on in Washington.
"I do financial counseling in churches and speak to various groups about financial matters. So you can bet I will continue to recommend to folks who need financial research/recommendations, they give Stansberry and Associates a look-see." – Paid-up subscriber Ron Smith
"I would like to respond to your Annual Report by saying that in my first full year of following the advice of several of your lower priced letters, as well as your DailyWealth Premium, I achieved an overall annual gain of 7.4% for the year 2012. I cannot afford to follow every recommendation and so have been selective in what stocks I have invested. I have also found your advice on reinvesting dividends very productive, as well as selling covered calls. So overall I am quite pleased with your service and valuable ideas, especially when the advice made perfect sense to me, such as buying [ETFS Physical Platinum Shares Fund (PPLT)] when platinum traded well below the price of gold, and then selling the shares when the price of platinum surged above gold.
"One thing I learned a long time ago was to buy low, and sell high. When the market crashed in 1987, I was in there the next week increasing my shares of mutual funds. I did the same thing in a big way in 2009. But in 2011, because of the debt situation and the lack of any real interest on money market funds, I felt it necessary to dive into stocks. Your advisory letters have helped immensely in that regard." – Paid-up subscriber Robert Gregor
"So, please tell me again why you don't publish Jeff Clark's report card? And why is it that you have never allowed any feedback on his service to be shown? Flat out, he is overall a loser and he charges so much that it must be embarrassing to admit it. What gives?" – Paid-up subscriber Richard Cole
Goldsmith comment: Perhaps you missed Porter's review of Jeff's Advanced Income service (which received the highest possible grade... A++). Porter will review Jeff's S&A Short Report this week, when he reviews all the trading services.
As you can see here, Porter gave the S&A Short Report an A+ last year... 56% of the trades Jeff recommended were winners. And he produced an average return of 13.1% (the S&P returned -0.1% on an apples-to-apples basis).
You'll see how the S&A Short Report performed in 2012 on Friday.
Regards,
