The Standard & Poor's Way

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

As of 07/05/2013

Boca Raton, Florida

* * * I write to you today from the eighth floor of the Boca Raton Resort and Club, which overlooks the Intercostal Waterway and the Atlantic Ocean. This hotel used to be one of my very favorites in the world. In fact, I ate the best rib-eye steak of my life at Luna, one of the restaurants here, in 2004. The place was truly special because the owner, Wayne Huizenga, who made his fortune in garbage trucks, ran the property like it was his own private club. And he was here all the time, so everything was done right. Unfortunately, in late 2004, Huizenga sold the resort to the Blackstone private-equity group for $1 billion. (He needed the money, in part, to finance his $77 million purchase of Greg Norman’s yacht.)

The private-equity guys have done their thing to the resort. My New York strip steak last night was inedible. It must have been in a freezer for years. The air conditioning in my room doesn’t work. The staff is all new and poorly trained. The golf course, which used to be one of the best in Florida, isn’t being maintained. It’s a shame. I’m sure the financials look great. But whoever the poor sap is who buys this place from Blackstone is in for a big surprise.

* * * Boulder, Colorado, will reportedly take Belgium’s lead and enact a "Gore Tax" – a tax on carbon-dioxide emissions – to save the planet from global warming. My friend Bill Bonner says:

"Ooh la la... faced with the imminent threat of an environmental Armageddon, what is a responsible citizen to do? ‘Green taxes’ should be easy to put over on the taxpayers. New bureaucracies, commissions, and agencies can be set up. New regulations will be promulgated. New functionaries empowered. Washington must be watching closely. If the ‘War on Terror’ peters out... at least they’ll have a back up: a war on greenhouse gases."

* * * Time Warner’s cable revenue rose 44% in the quarter... more evidence that TMT – telecom, media, and tech – are coming back into favor with investors after a six-year bear market.

* * * If you drink red wine you’ll live longer, say the headlines. What bunk. These "scientific" studies seem like wine industry PR to me. Yes, red wine contains resveratrol. Yes, mice fed resveratrol lived longer, even though they were fat. But a person would have to drink more than 300 glasses of wine – every day – to get the same amount of resveratrol. I’ve tried. It can’t be done.

* * * Heard from S&A colleague Tom Dyson late last night. I was working on my newsletter and was trying to compare the growth in demand for digital storage to the railroads. Tom is our resident expert on the rails. He hops freight cars for fun from time to time. So, I dialed him on his cell phone, knowing I could reach him wherever he was.

"Yes, Poor-tah," he told me in his very proper, British public-school accent. The size of a rail yard (storage) is related to the number of tracks (bandwidth)... and yes, size and complexity of rail yards grows faster than the simple sum of their tracks. Yes, it seems to be a factor of the number of interconnecting rails...

Tom was off and running. He would have talked to me about trains all night long. "Tom," I asked him, "where are you?"

"Oh, right. I’m here in my hotel room, in Council Bluffs, Iowa."

"Tom, what the hell are you doing in Iowa?"

"I’m researching pig farms here."

"Oh… very good. Better you than me. How do you like Iowa, Tom?"

"I don’t mind it at all, Poor-tah," he relied. "But it’s not to everyone’s taste."

* * * I knew this would be trouble, the minute I saw it.

Jeff Clark sent a message this morning to readers of Growth Stock Wire, saying that he thinks the mini-rally in gold over the last few days has gone too far, too fast. Thus, he’s bearish on gold. Meanwhile, over at DailyWealth, Steve Sjuggerud, Brian Hunt, and Tom Dyson are all long-term gold bulls. Brian’s chart today even suggests gold could break out to new, higher prices.

Our subscribers can survive when we’re wrong. But they won’t tolerate us being in doubt.

Says paid-up subscriber Al Brewster: "Stansberry does it again! Brian says ‘Gold about to break out to upside.’ The Growth Stock Wire has Jeff saying ‘stand by for a drop in Gold!’ You guys manage to ‘have it both ways’ – ashamed [sic] the real world does not work that way!"

Porter Comment: Actually, Al, the world does work this way. "Long term" to a trader like Jeff Clark means after lunch. While for analysts like Sjuggerud and Dyson, the long-term secular trends are more meaningful. Could gold fall this week and still be in a bull market? Absolutely.

* * * Finally, reader Mark Zielinski poses an intriguing question. He writes:

"Here is Canadian Finance Minister Flaherty’s e-mail address: jflaherty@fin.gc.ca.

Why not encourage people to let him know how they feel?"

Thanks, Mark.

* * * We’ll read what you send us... and we’ll pass the good ideas along. Pithy notes, good riddles, and fire-laced insults here: feedback@stansberryresearch.com.

* * * * * * * * * * * * * * * * * * * *

How contrarian are you? We’re about to find out…

Standard & Poor’s, the keepers of the world’s key stock-market index, the S&P 500, have decided to shuffle the deck. It’s replacing RadioShack (RSH) with Regions Financial (RF) and AmSouth Bancorp (ASO) with Celgene (CELG).

I’ve long suspected that index funds are a fraud of sorts, especially the S&P 500.

The S&P 500 aims to hold the largest 500 corporations in the United States. But, because Standard & Poor’s measurement of "size" is based solely on "price" (market cap), instead of holding the 500 best companies in America, it merely holds the 500 most expensive. Even worse, as index-fund investing has become more and more popular, the investment committee at S&P has begun changing the make-up of the index much more frequently.

The result? It removes cheap stocks (such as RadioShack) and piles into expensive ones (such as Celgene). That’s not a strategy I’d endorse.

I know nothing about the two bank stocks the index has swapped. But I’ve researched both RadioShack and Celgene personally.

We made huge gains with Celgene, by buying the stock early when most investors had never heard of the company’s plan to build a safe version of an effective, but dangerous, drug. We sold it just as the new drug was coming to market because the company’s share price became "unglued" from economic reality. Today, the stock is trading for 118 years worth of its pretax, cash earnings – $18 billion.

On the other hand, Standard & Poor’s dropped RadioShack from the index because its price had fallen too low. In the midst of a major corporate restructuring, RadioShack has been forgotten by investors. It’s worth only $2 billion now, according to the stock market. That’s roughly eight years’ worth of it pretax, cash earnings. Or, in other words, it is one of the cheapest stocks on the market.

If the stock market valued RadioShack the way it values Celgene, RadioShack would be worth $38 billion.

Consider… if RadioShack were wildly overvalued, like I suggest above, it would almost certainly still be in the S&P 500. Why would investors want to own the most expensive stocks in the market… while selling the cheapest? Beats me.

I suggest an intellectual wager to prove my point. Tracked from yesterday, when the news hit the market, I bet RadioShack will outperform Celgene by at least 100% over the next three years and by more than 200% over the next five. And, by the end of five years, Celgene will be removed from the S&P 500.

It will have become too cheap.

Good investing,

Porter Stansberry

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame