The S&A Digest

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

As of 06/28/2013

It's a boy... Emerging-market bonds hit new highs... America's uncreditworthiness... Mr. Softy doesn't disappoint... Another big dividend... More oil sands investments... Jackpot retirement...

"It's definitely a boy," said the doctor looking at a grainy, black-and-white ultrasound image of my wife's womb. "And he's apparently not afraid to show off his penis." Our little guy was moving around like Elvis in there. (I hope you'll pardon the overly personal lead to today's Digest, but many people who suffer through our daily notes are longtime friends and family. And it's our first baby...)

The No. 1 sign of a top: Risk premiums on emerging-market bonds are at all-time lows according to JP Morgan's EMBI+ index. The lowest close ever for the index – 157 basis points over U.S. treasuries – was hit twice this month.

We know most of you, dear subscribers, are not financial wonks. In plain English, measuring the "risk premium" between emerging markets and the U.S. simply means comparing the interest rate offered on emerging-market debt – like, say, Brazilian government bonds – to U.S. government debt. Historically, investors have demanded much higher interest rates from places like Chile, Brazil, and Taiwan to compensate them for their risk. But not recently... The last time I recall seeing numbers like these was just before the Thai baht crisis, 10 years ago.

However... past may not be prologue. Many emerging-market economies are in far better fiscal shape than Uncle Sam. The declining creditworthiness of the United States may now play a bigger role in this metric than in the past, indicating that perhaps investors are simply acting rationally.

Speaking of creditworthiness... You might not understand trade deficits, the current account, or why China's yuan is likely to appreciate. You might not even care. You might think Warren Buffett's warnings about the decline of the U.S. dollar and foreign claims on U.S. assets are nothing but hooey. You might not have bought gold yet. Or even a single foreign stock. But consider this: In 1979, 61 U.S. corporations had debt rated AAA – meaning there was essentially no chance of default, given the strength of their earnings and the structure of their obligations. By 1992, the number of American AAA companies had fallen to only 21. And today, there are only five real operating businesses rated AAA (not including government-backed agencies and "captured" insurance subsidiaries).

Corporate America, like our government and our homeowners, has decided that there will never be a rainy day, and the only risk in life is not spending while you can. We hope they're right.

We wrote it. Did you buy it?

...With Microsoft (Nasdaq: MSFT, $23) finally out of the regulatory woods, I think there's a good possibility the company will announce another special dividend or a very large share repurchase. The company has about $20 billion of extra capital on its balance sheet now. Either move would invigorate the stock and probably send it back over $30.

– Porter Stansberry's Investment Advisory, July 2006

On July 20, 2006 – approximately two weeks after our recommendation was published – Microsoft announced a $16 billion share buyback and a $4 billion "Dutch auction" tender offer. And today, Microsoft shares jumped up 5%, to more than $30, on a 65% increase in profits. PSIA readers should now have greater than 30% gains in Microsoft – in less than a year.

To grab or not to grab... InfoSpace (INSP), a search-engine operator, will pay a $6.30 dividend within the next 30 days. As always, S&A Dividend Grabbers will receive our analysis shortly.

Extreme Value pick Posco (PKX), the world's third-largest steelmaker, will swap 1% of its shares, $374 million worth, for a 1.9% stake in Hyundai Heavy Industries. The South Korean steelmaker is making the trade in order to fight off any hostile bids. Posco's broad ownership base – 59% of its shares are owned by foreign investors – leaves it vulnerable to takeover attempts.

A retirement worth working for... AT&T's chief executive Edward Whitacre will receive a retirement package worth $158.5 million for his 43 years of service. The package will also include $24,000 annually for automobile benefits, $6,500 for home security, 10 hours per month on the company corporate jet, and $25,000 annually to cover country-club fees. The icing on the cake... his family will receive free health benefits for life.

Fund managers at BlackRock, Goldman Sachs, and Waddell & Reed are buying the fewest U.S. stocks since 1998. The three mutual funds, with more than $20 billion in assets, prefer Germany, Austria, and Switzerland.

Statoil (STO), Norway's largest oil company, offered $2 billion to buy North American Oil Sands Corporation. Statoil believes that the private, Calgary-based company can produce 200,000 barrels per day within three years. Statoil aims to produce 25% of its oil from tar sands.

S&A Oil Report pick Kodiak Oil & Gas (KOG) skyrocketed more than 14% yesterday. The company made no official announcements, but volume did more than quadruple to more than 4 million trades for the day.

Not everyone in our office is packing away the pounds...

Two of our key staffers – Mike Cottet, our director of sales, and Brian Hunt, our managing editor – will run in Nashville's Country Music Marathon on Saturday. Some of you will remember that I planned to run, too. But my body failed me. About three weeks into my training, my left knee began to lock up whenever I sat down. MRIs revealed a few pieces of cartilage floating around. Surgery was recommended... or I could simply forgo running long distances. I elected to skip the marathon this year (though I have continued training on an elliptical machine I bought for my basement – and so far my knee has been fine.)

When I dropped out of the race, Brian Hunt stepped up. A strong, Iowa farm boy who was a standout safety on his high-school football team, Hunt had never run long distances before in his life. His first training run with Cottet was 12 miles. No kidding. And two weeks ago, I saw him complete his first ever 20-mile run. I was astounded by Hunt's determination and strength. How, after never running long distances ever before, could he go out and do 12, 15, and then 20 miles? "It's pretty simple, Porter. You just put one foot in front of the other, and you don't stop until Cottet says you're finished..."

New highs: Exelon (EXC), Nokia (NOK), ExxonMobil (XOM) Coca-Cola (KO), Kodiak Oil (KOG), AmeriGas (APU), JP Morgan Chase (JPM), Marathon Oil (MRO).

The mailbag has been hijacked by folks interested in our S&A advisory board. We weren't sure anyone would be interested... so we hesitated to even bring it up. But the response has been overwhelming! We're gratified that so many of you want to help us publish better newsletters. We will continue to accept resumes through May 1, and we plan to have the board in place by June 30.

(If you missed the earlier mentions, we're looking for five to eight subscribers with decades of experience in business and investing to serve as advisors to our editors. We'll ask you to serve for a year, to be available to our writers if they need your input, and review and comment on the publications you follow. You will also be invited to attend our Spring Editors' Conference and our Alliance meeting. We'll pay a $10,000 annual retainer and cover your normal travel expenses. If you're interested, please send a resume or a simple summary of your career history to the feedback address below.)

Now... just because we're looking for advisory board members is no reason to tone down your criticism of our work, our stock picks, our brains, or our character. Send all of your best derogatory remarks here: feedback@stansberryresearch.com.

"In the April 26th issue of the S&A Dividend Grabber, Goldsmith said, 'We're doing great... of our 11 recommendations, we have six double-digit gainers, and only two are in the red.' True enough, but guess which two recommendations I bought into? 'We' are waiting to do great. Since I can't eat other people's profits, for me, the jury is still out on the Dividend Grabber strategy. (Yes, I know it is too early to judge properly). On the other hand, if my trend of selecting the few losers continues, maybe I can advise Goldsmith on which recommendations to rescind." – Paid-up subscriber J.V.

Porter comment: Oh, I think the case for grabbing dividends is pretty much a slam dunk. Even the two we're down on aren't down much, and we're still in the early innings. Look at it this way: In the long run, you will probably find we make money 90% of the time. Very few advisories have that kind of batting average. With your luck, imagine how many losers you'd have following their advice...

"You people are causing a real problem for me – I have to keep jacking up my trailing stops!" – Paid-up subscriber Richard Shaw

Porter comment: This comment (which I understand is in jest) reminds me of another complaint I received recently... that too many stocks in one of our letters had moved above their "buy up to" prices. That one of our analysts has been too successful over the past few years is a strong indication that you've bought the right newsletter, not the wrong one. Remember: There will be more recommendations in the future. Or, as I say, opportunity is infinite, but capital is finite. Don't chase opportunities. Wait for new ones.

Regards,

Porter Stansberry

Cockeysville, Maryland

April 27, 2007

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