The S&A Digest

Were you contrarian enough?... Another double for Dan... MEDI on the block... "Stock dividends" versus "cash dividends"... Who I'm voting for...

Follow up on Vonage Holding Co. (VG)...

Founder Jeff Citron returned to the CEO position today, knocking out recently hired CEO Michael Snyder. Citron also announced a major cost-cutting plan, acknowledging the company's marketing was inefficient. To stabilize the business (which is fighting Verizon in what looks like a make-or-break patent dispute), Citron will cut 10% of the staff. Vonage also announced it added 166,000 subscribers in the first quarter and brought in $295 million in revenue. If, as we posed the question last week, you were contrarian enough to buy Vonage, you've probably done well: The stock was up considerably this morning (15%+) and, as I write, is now trading around $3.40.

America's smallest companies have become the most popular target for short-selling. Short positions in the Russell 2000, an index of microcaps, last month jumped to their highest point since at least September 2003, according to Bloomberg. Major investment banks took their short positions as the Russell 2000 has outperformed the S&P 500 for eight straight years.

We wrote it... did you buy it?

The steel mills, buildings, land, and other fixed assets of this – the third-largest integrated steel producer on earth – are carried at about $9.04 billion. So there's more in cash and receivables than in the fixed assets. Of a steel company. Not a bank... Steel is a risky, highly cyclical business. But this is clearly not a risky stock... Replacement costs for POSCO's assets must be twice book value, $35 billion at least. Getting the whole company, its Korean market dominance, liquid balance sheet, land, buildings, China prospects... everything... for $17.8 billion is a steal.

– Dan Ferris, April 2005 Extreme Value

I'd never read a detailed analysis of POSCO's balance sheet before. Buying an integrated steel company always seemed like a bad idea. It's capital intensive, it's a cyclical business, and it's a commodity product. That adds up to big trouble. But I learned from Dan's research that POSCO is really a bank dressed up like a steel company. Its immense balance sheet allows it to maximize the profit opportunities found in the cycles of the business. It was a genuinely brilliant insight. Since Dan's recommendation, shares of POSCO have doubled. We hope you profited.

Pharmaceutical company MedImmune (MEDI) hired Goldman Sachs to explore a possible sale of the company, citing interest from major pharmaceuticals and shareholder pressure. Shares rose 11% in early morning trading on the news.

Toyota named its first non-Japanese board member today – Toyota North America President James Press. See, it's an American company... really... it is... look at that white guy on the board.

New highs: Banco Latinoamericano de Exportaciones (BLX), McDonald's (MCD), Southern Copper (PCU), Silver Standard Resources (SSRI).

We asked for your worst criticisms... but, unfortunately, the lovefest mostly continues. Come on! There must be someone, somewhere that thinks we're a bunch of low-life crooks – after all, we're in the newsletter business for crying out loud. Send your blame (or your praise) here: feedback@stansberryresearch.com.

"I don't get it. You seem to say that stock dividends are meaningless: 'Trust me on this: Splits, stock dividends, or reverse splits are meaningless in terms of total return and should not influence your investment strategy,' but you encourage purchasing dividend stocks through the 12% Letter. Am I missing something? Isn't it good to buy high dividend paying stocks? And what about plowing back dividends into the stock to increase total returns? Please explain." – Paid-up subscriber Barbara Marcus

"Porter, in the April 11 S&A Digest, you write 'Splits, stock dividends, or reverse splits are meaningless in terms of total return and should not influence your investment strategy.' I agree on the splits and reverse splits. But to say STOCK DIVIDENDS are meaningless in terms of total return – well, that is not correct. Surely you must have been in a rush, or something, when you wrote that. Or maybe you were in a hurry to let Gabe know that you are giving him a week off – and that it will not count against his vacation – you can help turn his spell of bad luck around, you know." – Paid-up subscriber Jim Enright

Porter comment: There's a big difference between "cash dividends" – the kind we watch for and write about – and "stock dividends," which we ignore. A stock dividend simply increases the number of shares, thereby reducing the value of any single share. It's a wash in terms of intrinsic value. Stock splits, stock dividends, and reverse stock splits do not, in any way, change the intrinsic value of the shares or the total return for investors. All these things do is alter the number of shares outstanding. On the other hand, because stocks are generally valued by their earnings, we've found that when companies pay out large cash dividends (special dividends), the dividend will add to the total return over short periods (typically a year).

"I didn't realize that Chili's offered drive-thru service. That very concept works for McDonald's and Starbucks... except most of their drive-thru customers remain outside the restaurant." – Paid-up subscriber Jeff Lipsman

"I spent a year comparing various newsletters (including almost all the S&A ones). I rigorously back-tested the recommendations (even taking into account the real buy price after the 'newsletter effect.') I tried out the option newsletter you mentioned that did not tell you when to sell, but claimed the highest price hit before expiration. I could not believe my eyes! My request for a refund was so fast, they had not even processed the order yet. I would say that 80% of the newsletters were just plain hype and no cheese. However, the S&A series are in the top 20%... I respect your integrity and that of your editors. Nobody gets it right all the time, but your advice is top notch. That is saying a lot from me, because I am a tough customer." – Paid-up subscriber D. Brown

"In the S&A Digest, April 10... what a revelation!... and I figured it all out by myself, and along came Porter and confirmed it. I belong to an options newsletter that gives no advice when to sell. But more than that, the way it is set up, they can't lose and therefore have 100% winners because they list the opening date and price, the subsequent high and the maximum gain. If you didn't sell at the right moment... Oh well... but they get to list it as a winner." – Paid-up subscriber N. Teasley

"Porter, please give it a rest with the global warming thing. I disagree with you and have no problem with you stating your view... but come on... every week you write something. One final point: When someone disagrees with you, you get the last word, and you always throw out that lame 'I am not a Republican. I am an independent.' Funny how many Republicans are saying that now and funny how the only people you seem to go after in your letters are Democrats." – Paid-up subscriber Trent Yaconelli

Porter comment: I think the prescription drug coverage bill that was passed by the Republican-led Congress was the most corrupt piece of legislation EVER passed by Congress. All of the Republicans who pushed the bill through (at 3 a.m.) are crooks; most of them have since left Congress to work for the pharmaceutical industry. The free spending of the Republicans over the last decade will cause a massive political shift, as most conservative Americans no longer believe the Republicans mean what they say about smaller government. The corruption of the Republicans and this unpopular war might even set the stage for a true third party. My pick for president? That's easy. The only honest man in Washington, Ron Paul.

Regards,

Porter Stansberry

Baltimore, Maryland

April 12, 2007

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame

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

As of 07/01/2013