The S&A Digest

It's easier on the computer... We don't need a catalyst... Read about trailing stops... The Bancrofts are buying... Porter and the shark...

Important news: Tomorrow, you get a day off from our torturous prose. Goldsmith has family visiting and needs a day off. And... my wife says if she sees my computer one more time on our vacation, she's going to defenestrate it. We'll be back on Monday.

Overheard on a golf course...

"Weel, we've been playing a lot of golf on our PlayStation... and we done got right good at it, so figured, why not give the reel thang a chance? I tell you what, it's a sure lot easier on the dang computer. We never lost a ball before..."

The exchange reminded me of trading. I've met a lot of people who were great traders on paper. But... once you put money behind their ideas, none of them worked. It's a lot harder in real life.

Bank of America set aside $1.81 billion for credit losses, up 80% from last year. At some point, given all of his credit problems, Joe America is going to have to slow down his pace of spending and increase his rate of saving.

This from Dan Ferris: "David Winters' firm, Wintergreen Advisors, is still voraciously buying Consolidated Tomoka (CTO) shares. Winters' latest 13D, filed July 11, says Wintergreen owns 21% of CTO – and it's not done buying. Its latest buy was made on July 12, last Thursday. We said to buy it up to $78, and Winters has paid mid-$70s for some of his shares."

Note: CTO has long been recommended in Dan's Extreme Value. Readers are up 160% since he first recommended it in September 2003.

The SEC is charging David Li, a Dow Jones director and a well-connected Hong Kong businessman, with insider trading in connection with Rupert Murdoch's bid for Dow Jones. The probe is fascinating to us... because on April 11, only three weeks before the offer for Dow Jones was announced, we noticed the Bancroft family was suddenly buying millions of shares through Hemenway & Barnes, the Boston law firm that represents its family trusts. We called Dow Jones at the time and were told: "We do not speak on behalf of the family." Next, we called the law firm... and were told nothing unusual was going on. It's now known that at the exact time the family suddenly started buying shares (for the first time in a year) Murdoch had begun to approach top executives and family members about buying the paper. But... who wants to bet that the Bancroft family never gets a call from the SEC?

Shares of Extreme Value pick Banco Latinoamericano de Exportaciones (Bladex) jumped nearly 14% today, after the bank reported second-quarter earnings growth of more than 200%. Subscribers are up 72.9% on the stock since Dan recommended it in November 2003.

Investors have earned more in dividends, $6.14, than in capital gains, making it an ideal long-term value investment. As Dan says: The market takes back capital gains all the time, but no one can take back a dividend.

About one year ago... on July 21, 2006... Standard & Poor's Equity Research analyst David Kaplan cut his outlook in the semiconductor industry from neutral to negative. Kaplan wrote, "Based on recent results and comments from leading semiconductor equipment companies, we now see the start of a cyclical downturn in the semiconductor equipment market... We have a strong sell recommendation on... KLA-Tencor [and half a dozen similar companies]."

Our Dan Ferris saw something different in KLA-Tencor (KLAC). The company had a huge pile of cash that gave it a firm cushion against both market uncertainty and its own employee options scandal. Dan wrote: "When 28 cents of every $1 you invest buys cash, you can tolerate a fair amount of uncertainty."

Dan found something else too: unrecognized value. "KLA-Tencor's shareholders equity line reads $3.4 billion. The enterprise value – the net market price – is about $6 billion. So we're at a 10% premium to maximum VC prices, around 1.76 times book value."

Some subscribers have criticized Dan's stock picks in the past, citing the lack of a "catalyst" – something that will spark a move higher in the stock. KLA-Tencor is a great example. At the time Dan recommended it, nothing was going the company's way... and nothing good was on the horizon. When it comes to value investing, we'd rather simply buy cheap. When you do, you may not know what's going to drive the price higher, or when, but you know something most investors don't: The stock almost surely won't go lower. When bad things can't happen to your investments, it's amazing how often good things happen instead.

Oh... by the way... KLAC is up 50% in a year.

New highs: American Express (AXP), Pogo Producing (PPP), Sigma-Aldrich (SIAL), ExxonMobil (XOM).

In the mailbag... readers yearn for my death. I didn't think they'd go that far. Do you want me dead? Let us know why: feedback@stansberryresearch.com.

"The main reason I joined the Alliance was due to Jeff's insights in S&A Short Report. It is not short at all. I made money on all trades so far, although one is a possible loss now. But to get his insights for life was worth the price alone, and to get the rest for almost free was a bonus. Keep up the good work." – Paid-up subscriber Gene

"Could you please let me know what happened with Quest Capital Corporation (QCC)??? I had my stops set up with E-Trade, and QCC dropped big time and went right back up today. All my stops (25%) triggered and sold at $2.08 on the huge drop. The stock then bounced right back up. There wasn't any news I could find to cause it. I feel like I've been scammed. This was a Sjuggerud pick, and I'm very unhappy on this. I had about $12M in this stock." – Paid-up subscriber James Boyd

Porter comment: Unfortunately, we've seen this happen several times to subscribers with large positions in thinly traded stocks... which is why we tell you to never tell your stops to your broker, or anyone else. Your broker will enter your stops into the market, where other traders can see at what price you'll sell. And then guess what happens?

"Why don't we wait for a major market decline to award the accolades? As long as the party continues, you are all geniuses – so, of course, what better time (for S&A) to ask the question, 'Who's the Best'?" – Paid-up subscriber Doug

Porter comment: Good idea. When is that going to be?

"I think this whole notion of picking the 'best' editor is a bit nutty... The real value of Alliance membership is in the breadth of the coverage, depth of the analysis, and clarity of the writing. By that measure, you guys are all very good. You needn't encourage this bogus competition to solicit idle praise from readers. The quality of your service is easily and objectively measured. July 18, 2006, to July 18, 2007, my portfolio of stocks 'cherry picked' from the various letters gained 35.61%. I suspect Warren Buffett would be pretty happy with that. I know I am. Thank you." – Paid-up subscriber David

Porter comment: Yes... but the genuine competition among the editors fosters better advice for our readers. So, stoke the flames, won't you?

"Stories about how he caught the biggest fish? I hope he gets eaten by a big fish, him and his AHM. And how the heck do you pronounce Sjuggerud?"

– Paid-up subscriber Joe

Porter comment: Not funny. I've been attacked by sharks twice while surfing. Sjuggerud? It's easy: Sugar-rude.

Regards,

Porter Stansberry

Cape Hatteras, North Carolina

July 19, 2007

Stansberry & Associates Top 10 Open Recommendations

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As of 06/27/2013