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

Home sales soar... GM pawns the family silver... Why Detroit will boom... Corporate devil Wal-Mart is at it again... Heading to Miami... White lightening...

Sales of new single-family homes jumped by 16.2% in April, as average prices fell by 11.1%. The increase in sales was the biggest jump since April 1993 – which was the last time the housing market emerged from a slump. Our quant analyst, Ian Davis, is the only guy in our group whose homebuilder recommendations are still "in play." He's up on both of his home building stocks... and one of them, is even approaching an all-time high.

More signs of GM's impending collapse... After three years of selling corporate assets to generate cash while still losing billions a year, GM is left with precious few choices to raise funds. But there's still Allison Transmission... and it can always sell its shareholders down the river. So now GM says it will sell Allison (after all, it can always buy transmissions... why bother to make them?), issue convertible bonds (which will dilute shareholders), and even put up its remaining 49% stake in GMAC as collateral for a $5 billion credit line.

Like Ford (which has even mortgaged its brand name), GM is at the utter end of its financial rope. That's what eventually happens when you run a business at a capital loss for 30 years.

The sooner GM goes bankrupt, the sooner the American automotive industry will turn around. The industry has tremendous assets, and there's a tremendous amount of money to be made when that value is unlocked from GM's massive debt burden.

Speaking of the auto industry... We sent our most intrepid analyst, Tom Dyson, to see the demise of Detroit firsthand. Although he hasn't discovered any stock plays, he's found dozens of ways to invest in property – including buying whole skyscrapers for pennies on the dollar.

Everyone thinks Detroit is dead. But that's only because the U.S. auto industry is bankrupt. It won't be forever. And the endgame – a massive restructuring of Ford, GM, and Chrysler – is much closer than most people realize. Within five to 10 years, Americans will be making the best cars in the world again – at the best prices.

Investors who end up owning the Big Three's assets (but not their liabilities) will make a fortune. And so will property investors in Detroit. It will be a city reborn.

Says Dyson about Grosse Pointe, Detroit's most affluent suburb: It's right on the water, it's home to Detroit's snazziest country club (The Country Club of Detroit, which I played at yesterday), it's where the auto execs of the golden era built their mansions, and it's also very close to downtown Detroit... probably about two miles away.

Never before have there been so many mansions for sale along the water's edge there. In the past, these houses got sold by word of mouth. They didn't need realtors. But not these days. There's a cheap placard outside every third one.

The reason is, with a slum house, you can generate profit by fixing it up or renting to welfare cases. You don't need a rising market. But to generate money from these middle-class neighborhoods, you need a rising market. And the market has been stagnant for a long time. Plus, the property taxes are astronomical. One house I saw was on the market for $450,000, but you'd owe $25,000 a year in taxes! That's more than renting it would cost.

Let's see... if you bought 10 of these mansions, that would cost about $5 million. Let's assume you could put a total of $1 million down. And you'd have to pay $250k per year in taxes. Assuming 6% mortgages, your carry cost is $550k per year (taxes and interest). Let's throw in another $100k per year, for management fees.

So... in eight years, you'd have a total of $5.2 million in these properties. They'll be worth something around $2.5 million each at that point... or a whole lot more. So, you'll have spent $5.2 million... and your portfolio will be worth at least $25 million, and maybe as much as $50 million. Seems doable, doesn't it?

Retired or nearing retirement? Judging by our mailbag, most of our subscribers are either retired... or wish they were retired.

If you're looking for our 12 best ideas for retired (or near retired) investors, consider our latest invitation to join the Private Wealth Alliance. It's the most affordable way to get the most from us: One price pays for six of our best letters (True Wealth, PSIA, S&A Oil Report, The 12% Letter, The Big Trend Report, and S&A Penny Letter),plus your subscription will never expire.

And... as a special feature available only to Alliance members, you'll also get our newest report for retired investors – Twelve Stocks to Retire With. We searched our coverage universe for the 12 stocks we think are the best for retired investors to buy now. The portfolio contains safe, high-yielding recommendations in: telecom, infrastructure, finance, energy, and real estate. We estimate this portfolio will yield 8% in dividends and produce low double-digit capital gains, resulting in total returns near 20% per year.

12% Letter pick Citigroup (C) is replacing thousands of its Visa American Airlines cards with new account numbers and cards that carry the logo of Inside Strategist pick American Express (AXP).

S&A Oil Report pick Xcel Energy (XEL) has found a new source of renewable energy... turkey poop. The Minneapolis based utility company will use the waste – composed of droppings, wood chips, seed hulls, shed feathers, and spilled feed – to meet legislation that requires it to annually produce 110 megawatts of power from biomass. Three tons of turkey poop equals roughly one ton of coal.

On an unrelated topic, Xcel yesterday increased its dividend 3.3% to $0.23 per share, and plans to continue increasing the dividend 2% to 4% annually.

More on oil... Italy's Eni (E) bought a 16.33% stake in Czech oil refinery Ceska Rafinerska, doubling its stake. An unnamed source says that Eni bought the stake from ConocoPhillips (COP).

PSIA short sell General Motors (GM) could take a $1 billion charge in the second quarter related to bankrupt auto-parts maker Delphi. With this final charge, GM's total loss in relation to Delphi is $7 billion.

Inside Strategist pick WCI Communities (WCI) will meet with several potential buyers over the coming weeks. The Florida-based residential homebuilder again urged shareholders not to vote for a slate of directors proposed by Carl Icahn, after the activist investor's $22 share tender offer for shares expired.

The corporate devil, Wal-Mart (WMT), awarded $51,000 to Colorado schools through its Kids Recycling Challenge program for their recycling efforts. Wal-Mart challenged elementary schools across the nation to bring in used plastic bags and awarded $5 for each 60-gallon collection bag. In total, the Extreme Value pick paid out $830,000. Will the tyranny ever end?

New highs: Macquarie Global Infrastructure (MGU), Vector (VGR), Steinway Musical (LVB), McKesson (MCK), POSCO (PKX), Freeport McMoRan (FCX), Marathon Oil (MRO), Schlumberger (SLB), Janus Capital (JNS), ConocoPhillips (COP), Eni (E), Oneok (OKE), Petrobras (PBR), Royal Dutch Shell (RDS-A), Verizon (VZ), Disney (DIS).

A personal note before the mailbag... My wife and I are heading to Miami for the holiday weekend and getting a jump on the traffic by leaving tonight. It's our last trip before we have our first baby (a boy), who is due to arrive in September. We'll publish a brief Digest tomorrow, but there will not be a Digest on Monday (Memorial Day).

However, no matter where we are in the world, we still enjoy reading your notes. Please... take a moment over the long weekend and find something deeply insulting to send us: feedback@stansberryresearch.com.

"As a Midwesterner from Chicago, I have heard about a coming renaissance in Detroit for more than about a quarter of a century, all with great fanfare, but little changed. I know many contrarian investors who lost a fortune waiting for Detroit to turn around. Dyson is a pied piper who will lead many down the same disastrous road. The reason is clear to anyone who knows the region: the American giant car companies are but a step away from bankruptcy, while no one knows where Chrysler will wind up. Over the last many decades, business, especially manufacturing, has been leaving in droves. What remains is an emptied out downtown section on the edge of a bleak burned out slum. Also remaining is over a million slum dwellers who came to the city to work in the once thriving factories and now have no hope of finding work again. What will turn this city around is if the outsourcing historical trend suddenly reverses and business starts coming back. How likely are we to see that? Tell Dyson to read some history." – Paid-up subscriber Bob Berke

"Porter speaking of alcoholic beverages, which do you prefer, bonded, charred, or white? Also, how many stocks are too many? Keep up the good work and entertainment. If you do not know the terminology for shine, I will send a letter, not e-mail. Too many prying eyes and some one like the revenoorers might get the wrong impression about this ridge runner. Nothing like a moonlight night, car lights off, making your run. Right? Just kidding. ha!, ha!" – Paid-up subscriber Bernie Krantz

Porter comment: A cousin of mine keeps a supply of white lightening...

"As a former Detroiter, which is the best kind of Detroiter to be, I have fond memories of the David Stott Bldg. An art Deco design built around the time of the famous Fisher building in Detroit. It must have 3 million dollars worth of ornamental steel adorning its walls. In fact, it has everything, except enough paying tenants to make it a worthy project." – Paid-up subscriber Lazer Yossel

"Did you ever think of putting together a basic starter group of recommendations for new subscribers? The Hall of Fame and current Top Ten open group is fine but does not really help the new guy who needs to start building up cash to invest. Even long-term subscribers can't buy everything that is recommended." – Paid-up subscriber AMF

Porter comment: Our newest report, Twelve Stocks to Retire With, would be a great place to start. It's available – for free – to all of our Private Wealth subscribers.

"As a member of Dividend Grabber, I would greatly appreciate it if you could alert us to all special dividends as soon as they are contemplated or announced. I have had almost 25 years experience on the Street and can do most of my own analysis before waiting to hear your opinion." – Paid-up subscriber William Gerry

Porter comment: Er... huh. We do announce them immediately. I wonder if you've been receiving all of our e-mails?

Regards,

Porter Stansberry

Baltimore, Maryland

May 24, 2007

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame