The S&A Digest

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

As of 06/27/2013

Nokia jumps... Sjug's on the money in Tokyo... The pain of losses... Our brand new website...

Another great idea, from Jeff Clark.

There's a lesser-known strategy that actually uses put options to bet on a potential bullish move in stocks. It involves selling puts, and the current market environment is just about perfect for doing it... Search for a handful of blue-chip value companies that you would love to own if the market pulls back even more. Decide what you'd be willing to pay for those stocks. Then sell August or September puts at those strike prices.

If the market falls further, then you'll have to buy those bargain stocks at those bargain prices – which you wanted to do anyway. And, if the market goes up from here, then your short puts will expire worthless and you'll pocket the option premium. It's a good deal either way.

Read everything Jeff has to say in today's Growth Stock Wire.

Last month, foreign cars outsold domestics in the U.S. for the first time. July, however, was not a good month for either group. Foreign sales dipped 5%, and sales for the Big Three dropped a whopping 19%.

Tokyo real estate prices have soared 13.1% since last year, according to a Japanese land survey released today. That's compared with a rise of just 3.5% the previous year. This is the first year of double-digit growth since the survey began in 1992. That means Japanese land prices are finally shooting up again, after falling by more than half from their peak in 1991. Keiji Kimura, CEO of Mitsubishi Estate Co., Japan's second-biggest developer, attributes the rise partly to "active purchases by developers, funds and real estate investment trusts."

Our own Steve Sjuggerud has been recommending Japanese real estate since last fall. He calls it "a 15-year, one-way bet." Sjuggerud Confidential subscribers can find Steve's favorite ways to play this trend in his June 2007 special report, My 4 Best Ways to Profit from the 'Honshu Japanese Secret.' If you are not a subscriber, and want more details on this situation, click here.

Are you worrying at the right time? Our quote of the week, from the July 31 issue of Value Investor Insight:

For most investors, the pain of stocks going down is more tangible than the joy when they go up. It's human nature, and often leads to mistakes when markets fall as they have over the past week. The common impulse is to do something - anything - to minimize the pain. In our experience, this impulse is rare in successful value investors, who focus on positioning their portfolios for turbulent times. They buy only with what they consider a wide margin of safety in each position. They buy what's out of favor, not what's hitting new highs. They hold cash when they can't find sufficiently great ideas to employ capital. In essence, they do their worrying well in advance of a market break, not after it starts to happen.

We wrote it, did you buy it?

It's true that Motorola's flip phones have been wildly popular around the world, but these designs are mostly a fad... The next fad to catch on will probably come from Nokia – these things come and go quickly... Cell phone users are very fashion and function conscious. Styling and a wide variety of technological add-ons mean that cell phones will always have many price points and features. No two phones are completely alike and all users have different preferences. This sets up the market to be very "brandable."

– Porter Stansberry, PSIA, July 2, 2004.

Shares of Motorola (MOT) have declined steadily for the last three years (the company's flip phones aren't as popular as they once were). Nokia (NOK) shares were up 8.8% today, as sales for the world's largest cell phone maker jumped 29%, earnings doubled, and operating margins increased to 18.7% – the highest point in three years. Readers have made 118% on the recommendation.

Company of the day: MarketAxess Holdings (MKTX) operates an electronic trading platform for corporate bonds. It is a $600 million company trading for 90 times earnings. The company trades for 6.6 times sales and three times book. Its profit margins are low (7.8%) and its return on assets is even lower (3.6%). Shares are up 30% this year. Famed value investing firm Royce & Associates is the largest institutional shareholder, with close to 7% of the company.

New highs: UltraShort Real Estate (SRS), Raytheon (RTN), Sigma-Aldrich (SIAL).

In the mailbag... Remarkably, our new website seems to work... though I hesitate to say that out loud. I don't want to tempt the IT gods. If you haven't seen the new website yet, please go take a peek. So far, we're getting good reviews: feedback@stansberryresearch.com.

"I'm a new subscriber. Where can I find the recommended reading list?" – Paid-up subscriber Rahul

Porter comment: Take a look in the Digest archives. A search for reading list (no quotes) turns it up as the first result. Of course, you can also just click here.

"I have been reading all the feedback regarding the value of a university education. I went to university for one year, never knowing what I wanted to be when I grew up. After one year, I quit and went to work for a few years and at a few different jobs. I then went back to university for one more year only to discover that it was not for me. Went to work for a major oil company and started as an accounts payable clerk because I DID NOT have a university degree. After a period of time, I was promoted to a great job, and in the end used all the jobs I had to start my own business, which was very successful. It's what I learned at the University of Hard Knocks that gave the knowledge, experience and versatility that I needed. I believe too many people go to university not because they should, but because they think it is the only way to get ahead. How sad." – Paid-up subscriber Marvin Groberman

"At fifteen I was a lousy little box boy know-nothing earning 85 cents an hour. My mother the meat-wrapper got me the job. I was next to worthless and maybe worse than that. The owner of the grocery store kept me on, it didn't cost him much, and I was at least polite to the customers. Ups and downs followed, but I remember getting a five-cent an hour raise while the other boys got a dime. But I stuck it out and the owner took an interest in me and by nineteen I was the assistant manager of the highest volume store in town. At twenty-five I went to college and got a MS in biology and then went to MBA school because I couldn't stand the backbiting, overweening ambition of the professors in the sciences and thought business would be better. It was, but only marginally and all the emphasis was on working for a corporation. I finally had enough while taking my last course for the MBA and quit that horrid place and bought a restaurant, which I knew nothing about running, but I did know something about running a business and managing people from my experience at the grocery store. One day I saw one of my former professors in a store and he came up to me for a chat. He wasn't a bad sort, but here's what happened that day: He asked me why I didn't come back to school and finish that one class? I said that I thought it had all been a regressive experience. He said, 'Well, you can't be more insulting than that,' as he turned on his heel and walked away. Since then I've done a lot of things, like spending years out on the road on a motorcycle getting my head right and running a small NASDAQ traded company before retiring. Philosophy is what I studied on the road and it is that that I feel is the most important subject. Integrity. It has a power to it that is hard to imagine. In difficult times, if you have it, people will help you as you helped them. Looking back I see that it was my apprenticeship that made all the difference for me. College exposed me to financial ratios and accounting and so on, useful to be sure, but it also nearly killed my spirit. If it hadn't been for chess, noon basketball, racquetball, and designing and test-flying paper airplanes out of my teaching assistant high rise office window, I might have jumped out that window. College is a very dangerous place." – Paid-up subscriber Michael

Porter comment: Sounds very familiar to me.

"You asked Jeff if it was time to go short? He said no!? He may indeed be right, because the time to go short was last week. Fortunately enough for me, I dumped the AHM last week. I sold my RIO. I exited my WMT position. I then put every penny of it into SKF. I'm smiling right now." – Paid-up subscriber Joseph Zmuda

"...I haven't seen a discussion of the various investment companies such as Oppenheimer, Morgan Stanley, Fidelity, Bear Stearns. Are these institutions safe as a place to keep our hard earned $$$ or should we be suspect of keeping all our eggs in one basket? How about a discussion of these brokerages, their costs, and their relative strengths or weaknesses?" – Paid-up subscriber Mike Totty

Porter comment: We're not a ratings agency... We don't evaluate the relative merits of banking institutions. From time to time, we've had subscribers rate the various discount brokers, but I can't remember anyone discussing white shoe firms. As investments, I'd be very cautious about all financial companies. As a group, they're expensive measured against historic valuations, the yield curve is flat, and credit growth has stalled and looks poised to actually decline. These facts should make it difficult for financial firms to do well.

"Next hot topic should be: Should sports betting be legalized? We are close to the beginning of pro and college football season... hundreds of millions are bet every year... online and by the local bookie... people can legally buy a roll of scratch-off lottery tickets for hundreds of dollars where their odds of winning are extremely slim... but you can't legally bet on a football game (except Vegas) where your odds of winning are 50/50. You can lose your ass in the stock market because of irrational exuberance but you still can't bet on a football game. Picking a side on a football bet is a lot like picking a stock. You have to factor in all the data... i.e. the point spread/stock price... the weather... injuries, etc. Why doesn't the government just legalize it and take the vig and pay off the national debt?" – Anonymous

Porter comment: I can't support new taxes of any kind. Have you seen what they've done with our money already? Gambling is only entertainment for the statistically illiterate. And such wagers are already legal in many places in America. What more is there to discuss?

"Porter, contrary to what one of your current subscribers wrote, it was nice to see that you referenced OLED as stock of the day on 7/31. For those of us that were long time Diligence subscribers, and still held substantial positions in OLED, it was a shining light in what has been a dismal week and a half." – Paid-up subscriber Steve S.

Regards,

Porter Stansberry

Baltimore, Maryland

August 2, 2007

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