The S&A Digest

A bad lunch at Chili's… Eight days in a row… Buy Citi… What "global warming" really means… How dividends affect trailing stops…

"Porter, I gotta go home," our webmaster, Gabe, said yesterday as he rushed past me in the lobby of our building.

"Gabe, what's the matter? Too much shrapnel flying around here?"

Bad luck seems to follow Gabe around like a black cloud. And the last few months have been particularly dark. Just before Christmas, he was at the mall with his family when a gunfight broke out. His wife and three kids had to dive to the floor to avoid the bullets. Meanwhile, at work, Gabe is building a brand-new website for us, while holding the old one together with rubber bands and matchsticks. Anytime something goes wrong, people shout at Gabe from six directions.

"No, no… my wife and our three kids were having lunch at Chili's, and a car drove through the restaurant!" He wasn't kidding.

Luckily, his wife and kids are OK.

Signs of a market top? The Dow Jones Industrial Average rose for the eighth straight day, making for the longest day-to-day rally in four years.

Will you buy enough? 12% Letter pick Citigroup (C) today announced that it will reduce expenses through 17,000 job cuts - and take a one-time $1.38 billion pre-tax charge in the process. Citigroup also will send an additional 9,500 jobs to lower-cost locations. Investors don't seem impressed. The stock is down.

We're happy to take the other side of this trade. Citigroup is the world's premier banking franchise. In the last two years (counting cash dividends and buybacks), it has returned $36 billion to shareholders (14% of total market cap). You can buy it today for two times book value, while regional banks continue to be purchased for four times book value.

Keep an eye on the shares of equipment rental company United Rentals (URI). The firm has hired bankers to "explore strategic alternatives."

Oh, boy... S&A Oil Report pick ConocoPhillips (COP) became the first U.S. oil major to join the call for a global-warming emissions cap. Why would it do this? For the same reason drug companies welcomed regulation, and the same reason the tobacco companies welcomed regulation… Shaping legislation on "global warming" will enable COP to pass on more of its costs to its customers and to make it harder for smaller oil companies to compete against it. Now you see the real meaning of "global warming": a massive new lobby in Washington, new rules and regulations, higher costs for you and me. Nevermind how cold it is…

New highs: Anglo American (AAUK), Banco Latinoamericano de Exportaciones (BLX), BHP Billiton (BHP), Chevron (CVX), Exelon (EXC), FLIR Systems (FLIR), Gabelli Dividend & Income Trust (GDV), Janus (JNS), KLA Tencor (KLAC), Coca-Cola (KO), Nokia (NOK), Telstra (TLS).

I'm sorry to say it's a bit of a lovefest in the mailbag today. Dan Ferris tends to bring that out in our subscribers. You can't blame them. They've made millions with his advice. In fact, the only upset subscriber is mad that there aren't more angry e-mails. Do him a favor, let us have it. Tell us all the ways we've let you down: feedback@stansberryresearch.com.

"This morning I received an alert from another source to the special divided announced by Cambrex Corp (CBM) of $14 payable May 3, 2007. This was actually announced by the company last Friday April 6. So far, I have not heard from you about this special dividend, and I am a little perplexed why I received the notice from a free source rather than my $500 subscription to Dividend Grabber." – Paid-up subscriber Thomas Dunn

Porter comment: That dividend was actually announced last October, as we reported in these pages. We've been following it since, waiting for the timing and amounts to be finalized. You'll see our analysis this week.

"Porter, Goldsmith, somebody, Bueller, Bueller, Bueller? The mailbag is getting boring. When the mob isn't squealing, I get nervous. Please piss off the mob again soon, very soon. P.S: The 'letter from the GM CEO' was brilliant. Here's a suggestion: Do it again for some other CEO or company everyone mistakenly LOVES. That should be positively scantilliacious! (Go ahead, use that 'word' to see if anyone notices. Hell, use the word enema in the diatribe against whomever. Whatever it takes." – Paid-up subscriber Mike Rollins

"I would still like you to explain how dividends paid affect the trailing stops that are assumed in your newsletters that recommend use of trailing stops." – Paid-up subscriber Dave Kummer

Porter comment: Excellent question. The answer is, it's up to you, and it depends. In the 12% Letter, when we're holding something mainly to garner income, we've used the dividends paid as a buffer to extend our trailing stop. But in most of our letters, we ignore the dividends paid and follow stops based simply on capital gains.

"I have never written before, but was prompted to when I read your article about unscrupulous publishers writing newsletters to 'tickle their clients ears'... I just want you to know that if you ever stoop to those standards, I will immediately cancel any and all of the subscriptions that I have with you. I subscribe to your newsletters specifically because I want good, solid, nonbiased and highly principled advice. I have made more money than I have lost with your recommendations that I have followed. In fact, each time I subscribe to one of your newsletters, I almost immediately make back the purchase price on a trade. Enjoy your beer, but do not ever lower your standards for your newsletters." – Paid-up subscriber Dave

Porter comment: Anytime I start to "lean" in the wrong direction, Sjuggerud knocks me back on the straight and narrow.

"Your comments on the touting of the penny stock are absolutely right as I have myself experienced being a prey, often, to the ever-enticing various penny stock newsletters. I could not agree more with you on your comments on other newsletters that feed on readers GREED. I have faith in your ethical standards and hope you do not do anything to compromise. I am convinced that in the long run I will have scored a home run with these stocks. I will not part with my Penny Letter." – Paid-up subscriber B Patel

"I purchased the [S&A] Penny Letter because I knew I would be getting Dan's world-class analysis of stocks for a pittance. I have not been disappointed. Dan has ferreted out the value stocks under $10 that have the best probability of making you money at the lowest risk. I also subscribe to a penny-stock publication from Agora that offers stock picks that are 'swings for the fence' that most likely will have a high number of strikeouts. The idea is the home runs make up for all the strikeouts. I have no doubt that at the end of one year, my Ferris picks will have far out-performed the more speculative penny-stock picks. I'll let you know." – Paid-up subscriber Brett Fromme

Porter comment: We're happy to compare Dan's track record in Extreme Value over the last five years to any newsletter track record, published anywhere in the world, whether dealing in options, penny stocks, commodities, or blue chips. And in a few more months, I'm confident we'll be able to make the same positive comparisons with his new S&A Penny Letter.

"Just to give a positive opinion of Dan Ferris' penny-stock letter, I really appreciate his research, and I like the chance to buy companies that are cheap because they are out of favor at the moment, but are very likely to recover in time. This letter [fits] my contrarian nature perfectly, providing me with stocks that have been beaten down, but have assets that are worth more than the current price. And if the price declines a bit, I can feel confident in adding to my position, which I have done with several recommendations." – Paid-up subscriber John Thomas

"It would be most helpful if, in your S&A 16 list, you put another column that showed the name and date of the newsletter that made the [original] recommendation, so we could easily look back and read up on the research. It's an idea that's easy to do and would mean a lot to your Alliance members." – Paid-up subscriber Don Barnby

Porter comment: Great suggestion. I've passed it along to Brian Hunt, our managing editor. We'll do it the next time.

"What do you think about AZZ? It announced a dividend in the form of a 2-for-1 stock split." – Paid-up subscriber "Rick"

Porter comment: That's not a return of capital to shareholders. It's not a real dividend. And it's meaningless to investors. Think of it this way. If you and I are sharing a pizza, and I cut my half into four slices while you cut your half into two slices, did I get more pizza? It's true that for a period of time in the late 1990s, stocks that split tended to move higher for a few days on the announcement. But that's only because there were so many inexperienced investors acting on tips from people like Wade Cook. Trust me on this: Splits, stock dividends, or reverse splits are meaningless in terms of total return and should not influence your investment strategy.

Regards,

Porter Stansberry

Baltimore, Maryland

April 11, 2007

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As of 07/01/2013