The S&A Digest

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 07/01/2013

Heading back to Mexico... Oh no, here comes Congress... FBI after Beazer... How NOT to grab a dividend... A letter from Iraq...

Good news for our S&A Alliance members... based on what I saw last week in Mexico, we've decided to have our annual meeting at the Fairmont Mayakoba, which is in Playa del Carmen, Mexico. We're planning on a November meeting, and we should have dates for you sometime this week.

For those of you who are new to S&A Investment Research we host, at our expense, a meeting once a year for all S&A Alliance members. Last year's meeting, at the St. Regis in Aspen, featured as its keynote speaker Mohnish Pabrai, one of the world's top value investors. We send all of our analysts and invite all of our best contacts to come, too. It's a chance for our top clients to meet – face to face – with our entire team.

Signs of a top: Standard & Poor's analysts say that mortgages made in 2006 are the worst performing in the entire subprime debacle: 13% of those loans are already delinquent and 6.65% are "seriously delinquent" – more than 90 days late.

Congress, led by House Financial Services Committee Chairman Barney Frank (D-Mass.), will hold hearings on April 16 to determine if investor demand for subprime mortgages led to "excessive lending." That's a term that could have only been coined in Washington by someone with the moral fiber of Barney Frank. (Frank was reprimanded by Congress in 1990 when a gay male prostitute he hired from a newspaper ad began running a prostitution ring out of Frank's home. Frank claimed to be unaware of the activity.)

Remember when Americans were known for their thrift, self-reliance, and self-determination? Not any more. Nowadays, if you can't pay your mortgage, it's your lender's fault! America: It's always someone else's fault... even if there's a gay prostitute working from your home...

The FBI is investigating homebuilder Beazer Homes for allegedly falsifying documents relating to FHA-insured mortgage loans. The floundering stock, which hit a new 52-week low of $31.41 yesterday, was down another 14% in after-market trading.

There was a large and surprising increase in the amount of trading in Dean Food's put options last Friday. Apparently, some investors believe the best way to profit from "dividend grabbing" is to buy a put option to profit when the share price trades ex-dividend. (The share price will fall by the amount of the special dividend, in this case $15.)

As we've mentioned several times, you cannot make a profit buying put options in anticipation of a dividend-related decline. The strike price will be adjusted automatically by the amount of the dividend. Likewise, if you're shorting the shares, you'll have to pay your broker the dividend. Sorry to burst your bubble, but there's no totally free lunch on Wall Street. To learn the basics of how to grab dividends successfully, see our primer How to Grab A Dividend. It's on the S&A Dividend Grabber section of our website.

New highs: Macquarie Global (MGU) and Telstra (TLS).

Lots of mail today... Send your best shot to: feedback@stansberryresearch.com.

"I am sure Mr. Ferris makes many good recommendations – just look at the top ten list. However, the top ten list should add another column: Advisor's average return on suggestions during the previous (say) 18 months. Anyone could suggest 250 stocks and have a few of them be outstanding. What I am interested in is the true performance of the advice. Thank you." – Paid-up subscriber Eric Wilson

Porter comment: Dan is the best stock picker writing a newsletter in the United States. In his Extreme Value newsletter, he has recommended 45 stocks (not 250) over five years. The average gain is 51.3%. The average holding period is 615 days (slightly less than two years). We are thrilled to compare Dan's real and genuine record to any real track record, anywhere.

"When I signed up, I was told I would be getting a weekly letter called The Blast. What happened? I have still to receive one. Thanks for checking this for me." – Paid-up subscriber Duncan DeBond

Porter comment: About six months ago we replaced The Blast with the daily letter you're reading now – the S&A Digest. The biggest difference? The Blast featured columns by our different writers each day. But I write the Digest each day. Some folks tell me they enjoy the Digest a lot more than The Blast... I always assume they've been drinking too much...

"I'd like to offer my ultimate kudos to your team and the insight you have, as well as the fun. There are so many talking heads that it's hard to sort out the good from the bad, and so far so good with you. I like Jeff's trades and rationale in the [S&A] Short Report, and anyone who isn't a subscriber needs to be... Keep up the great work with everything. You guys are great. Is there a way that subscribers can maybe meet and greet you guys if we are ever in town?" – Paid-up subscriber Robin Henderson

Porter comment: Join the Alliance and come to our meeting in Mexico (see above).

"The question yesterday was 'Does dividend grabber work in possible bear markets.' Your answer was to look at General Maritime, hardly the answer to the question. So, does it work as HMA, SMG, and LVT are moving at a snails pace. Please answer the question, it merits a decent answer." – Paid-up subscriber Craig Paulson

Porter comment: Ummmm... I never quite know what to do with comments like these... If you didn't like my first answer, I wonder what you expect me to do now... Do you want me to lie? I feel the same way when my wife asks me why I'm late getting home from work. I know, no matter what I tell her, she's not going to be happy.

Alas... all I feel safe doing is telling the truth... So I'll just repeat what I said and hope that makes you happier this time...

Shipping stocks (like General Maritime) have been in a bear market since January 2005. Most have declined by around 30%. (Any decline in excess of 20% is widely considered a bear market). But, despite being in the midst of a bear market, the stock moved up by double digits on its ex-dividend day (the first day of trading after it paid a large special dividend).

Additionally, as Ian's study showed (see Monday's Digest) almost all special dividend stocks (90% or so) led to exceptional short-term profits over a 37-year period – including during bear markets.

"I'm interested in the dividend grabber service. However, since I'm not a US citizen and my country (Brazil) doesn't have a tax treaty with the US, I have to pay withholding taxes on dividends (a 30% cut). And there might be more taxes in Brazil, although I'm not sure since dividend income is tax-free here (Not sure about foreign stocks). I might be looking at a 50% cut in total. Would this make that strategy worthless for me?" – Paid-up subscriber Fernando

Porter comment: Fernando, please make sure you speak to a financial advisor or tax accountant in your home country, Brazil. They'll know what the potential tax burden is.

But, in general, dividend taxes should not keep you from the Grabber. You'll still make a killing buying on the ex-dividend day, after the dividend has been paid. Remember: The stock price must increase back to its previous level (before the dividend was paid) for investors to make a profit from any dividend payment. You'll just make your gains in the form of capital gains, not dividends.

"I'd like to start off saying, I'm 26 yrs old, deployed in Iraq... Without knowing too much about the whole investment world, I started my subscription with you a few months ago, and I've watched the picks you talk about grow... I don't think people should bicker and complain, and tell you, YOU SHOULDN'T CHARGE us that much. If they want the subscription, they should pay for it, well aware of all the risks and possible rewards." – Paid-up subscriber "Brian"

Regards,

Porter Stansberry

Baltimore, Maryland

March 28, 2007

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