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

USG's new issue... We're back on the new highs list... Goldman Sachs outperforms again... Dan Ferris is staying put... We're still going on global warming... and Al Gore...

On Saturday, spring arrived in Baltimore. It was a sunny, 60-degree day. I could feel the warmth in my joints. Oh, did it feel good after a February dominated by snow and ice.

My wife and I took my wife's twin sister and her husband to the Cross Street Market downtown. This is the real Baltimore, not the cleaned-up tourist version. There are hosed-down cement floors, decades-old wooden stalls, the smells and sounds of a fish market... plus a few drunks to greet you. We slurped oysters, peeled fresh shrimp, inhaled a crab cake, and drank a few beers. There was nothing but smiles... until my phone rang.

It was my best friend calling from Miami. His father had died, suddenly, of a heart attack. The funeral would be tomorrow... in Orlando, Florida. I had to run to catch a plane.

A beautiful, spring Saturday vanished in an instant...

Regular readers of the Digest will remember earlier this year, we speculated that two automotive parts makers (Lear and Magna) were well positioned to take advantage of the growing operational deficits at GM, Chrysler, and Ford. A few weeks later, Icahn offered to buy all of Lear at a premium – apparently to capitalize on this opportunity. And now Magna's chairman, Frank Stronach, says Magna would like to buy part, or perhaps all, of Chrysler.

PSIA and Inside Strategist pick USG (USG) has seen its share price tumble in recent weeks, from around $58 to less than $50. Investors are worried about the housing sector and the possibility of falling demand for USG's core product – SheetRock (gypsum drywall). Adding to the concerns are USG's plans to sell an additional 7.9 million shares of stock to finance the purchase of California Wholesale Material Supply Inc.

Most acquisitions outside of a company's core business are a mistake. But that's not the case here. USG's subsidiary – L&W Supply – is making the acquisition. L&W's main product is gypsum wallboard. By owning the vendor of its product, USG extends its control over the sector and ensures its end-users get good customer service when making a purchase. Furthermore, USG has been developing this subsidiary – L&W Supply – for years. And over the last few years, USG has spent more than $100 million buying up small supply companies across the United States. So far, these investments have paid off. Operating profits at L&W Supply have nearly doubled in two years, from $103 million in 2004 to more than $203 million in 2007.

Today, USG trades for less than a single year of sales, or about six times annual operating earnings (pretax). It's the market leader in North America (with more than 30% of the market) and earns more than 40% a year on its equity. Warren Buffett is USG's largest shareholder. We'd add to our positions at these prices.

Host Hotels and Resorts, a REIT, will be added to the S&P 500, replacing Phelps Dodge, which is being acquired by Freeport-McMoRan at a future date.

Goldman Sachs dodged the subprime bust. Earnings gained 29% year over year to $6.69 per share, beating the highest of analysts' estimates. This is the seventh quarter in a row that Goldman Sachs has beaten analysts' estimates.

PSIA pick Intel (INTC) is opening a $2.5 billion microchip manufacturing plant in Dalian, China. Roughly half of Intel's sales come from Asia, but this will be Intel's first manufacturing facility in China.

Finally, some new highs: American Real Estate Partners (ACP), Enterprise Products (EPD), POSCO (PKX).

Before we get to the mailbag... please note: Dan Ferris isn't leaving us. He has applied for the much-ballyhooed job of becoming Berkshire Hathaway's new investment director. Although we think Dan is eminently qualified for the job (he's the best stock picker we know, and we've heard the same from a handful of billionaire investors), it is extremely unlikely that he'll get the job... or even a response to his application (thankfully).

Nevertheless, we've always considered it one of our obligations to do whatever we can to further our employees' careers – even if it means losing them. So, if you've got a contact at Berkshire, please, tell them to look at Dan's application. I'm sure they'll be impressed.

And now... the mailbag. It seems once again that you're mad at us, that you think the absolute worst of us, and that you only subscribe to our letters to have something to stock your bathrooms with. Regardless, we read your letters – every word – no matter how insulting. Send your bombast here: feedback@stansberryreearch.com.

"I am not a happy investor in you [sic] work. It is all based on complete faith in your pics [sic] made years ago. Past performance doesn't sell here. I wasted my money buying this newsletter. So long." – Paid-up subscriber Sally Tompkins

Porter comment: Sally, we're sorry to see you go... and curious about your results. What happened?

"After collecting the HMA Dividend Grab, I put all my money into [a] Dan Ferris pick. Now he's leaving? Good Luck Dan." – Paid-up subscriber John Sassany

Porter comment: No, no... Dan isn't going anywhere. See the note above.

"I have noticed that when you refute global warming, you are not bringing any evidence to our attention. Your comments are merely negative slurs on Al Gore, as well as the whole idea of global warming. This is one thing that I try particularly to notice when I am making a judgment about whether to believe anybody." – Paid-up subscriber Kathy Holian

Porter comment: I don't have any alternative "facts." I don't know whether or not the Earth is warming or cooling. I'm skeptical of the "facts" on both sides of the argument. The climate is far too complex and contains far too many unknowns for anyone to know anything for certain about what the climate will be in 10 years. But, as far as I can tell, there's very little chance that the climate is going to change fast enough to cause any calamity. It's never happened before in recorded history, which is enough of a reason to be very skeptical about it happening in our lifetimes. And, even if it does happen, I won't let it bother me – because there's nothing I can do about it.

On the other hand, I'm very concerned about efforts to "limit" global warming. All of these plans call for a reduction in my liberties, a rise in my taxes, and an increase in governmental power. I know these things will cause infinitely more harm than the planet heating up a few degrees. And, unlike climate change, I know these things can happen because I've seen them happen. During my lifetime, liberties have been constantly curtailed, taxes have constantly gone up, and the government has consistently grown more powerful, year after year.

"I guess I just don't 'get it' when it comes to 'dividend grabs.' If the NAV is usually reduced by the amount of the dividend, it looks as if the dividend grab results in an immediate return of your own money accompanied by an immediate tax liability." – Paid-up subscriber William Miller

Porter comment: You should never follow a strategy that you don't understand.

"You take issue with the fact that Al Gore offers deals on things that people can purchase from a company that he owns. The nerve of the man! That's rather like someone offering subscription deals on an investment advisory letter that they own. Pretty low-life behavior. And if all politicians are whores, then stock advisors like yourself are surely pimps, hawking your stable shamelessly with catchy and sometimes sensational banter, providing a variety of potential pleasures to suit whatever personality. In one regard, you are responsible, as you do advise caution (protection) at times. But it's all about you making money. As to you comparing Gore's looks to Frankenstein, I've not seen a picture of you, but judging from your journalistic flatulence – warthogs be wary." – Paid-up subscriber Ross Douglas

Porter comment: Al Gore has never had a real job. He's lived off of the taxpayer his entire life, in one way or another. He picks his beliefs (and his accomplishments – remember he invented the Internet) according to what he thinks the crowd wants to hear. He's a modern day con man. And global warming is nothing more than his latest con. If you don't like our letters, ask for a refund. You'll get it. Don't you wish the same were true of taxes?

Regards,

Porter Stansberry

Baltimore, Maryland

March 13, 2007

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame