Goldsmith comment: Porter had some personal business to tend to today, so he was only able to write one bullet and answer the mailbag. If you find yourself yearning for more Porter, be sure to check out his recent interview with The Daily Crux: "The White House is lying to you about the dollar."
In it, Porter discusses how and why the U.S. government is purposely destroying the value of your savings (because it has no other choice) and what Wall Street openly discussing gold ownership for the first time in history means for the precious-metals market. It's a fantastic interview full of some classic Stansberry rants. To receive the interview – completely free – simply sign up here.
Insider selling last weak nearly tripled from the previous week to $846 million ($330 million of which was media mogul Sumner Redstone dumping his stake in CBS)... Meanwhile, insider buying was a paltry $14.7 million, down from $32 million the previous week. The message coming from corporate executives is clear... They believe their companies' shares are overvalued after the recent rally, and they're cashing out before the next leg down.
On a similar topic, an investment banker friend of mine said his firm is almost exclusively doing equity offerings now... All of the publicly traded firms are calling him, trying to tap the equity markets while share prices are bloated and investors' risk tolerance is on the rise. When corporate insiders – who know more about their companies than anyone else – are selling and Wall Street is buying, watch out...
Despite the lackluster insider-buying environment, Inside Strategist analyst Braden Copeland has been producing amazing results... In fact, The Wall Street Journal quoted Braden in a short piece it published about one of his most recent recommendations – and current new high – Steak 'n Shake (SNS). You can read it here.
Braden initially recommended SNS in September, noting how cheap the burger restaurant was on a free cash flow basis and the fact that the company just hired a new CEO, activist investor Sardar Biglari, who has made investors tons of money in the past. Braden also dedicated his most recent issue to SNS:
Biglari had been working to convince shareholders he could save Steak 'n Shake since the summer of 2007. He had successfully taken over Western Sizzlin (WEST) in 2005 (within two years, shareholders were up over 100%), so he was credible – even though he was hardly 30. He added to his credibility by investing almost $15 million to acquire 11% of the company's stock.
Shares of Steak 'n Shake are up over 60% since Biglari become CEO in August 2008. The S&P 500 is down 16% over the same period.
Braden discovered an important change in the company's quarterly report... Biglari has transformed Steak 'n Shake into a holding company – a company that uses its cash flow to invest in other businesses... Think Warren Buffett and Berkshire Hathaway. Readers have the opportunity to buy this little-known and undervalued company – which should already be worth 50% more than it is today – and get Biglari's investment expertise for free.
Some of the greatest investments in history have been holding companies. Again... think about Berkshire Hathaway, which trades for more than $100,000 a share, or Loews Corp., the giant conglomerate controlled by the Tisch family. Steak 'n Shake could be a similar story.
SNS is just one of Braden's shrewd picks. For $4 a week, ISS gives you all his best investment ideas... and his track record is impressive: More than half of Braden's recommendations have already gone up more than 15%, and four are up more than 35%.
His biggest is up 120% since the end of April. To receive Braden's full analysis on Steak 'n Shake, you can sign up for Inside Strategist here.
"If you don't own this stock, you can't call yourself an investor" is how Porter usually prefaces any mention of his favorite telecom company, Verizon (VZ). And so far, he's proven correct...
Readers are up nearly 20% on the recommendation, and the second-largest U.S. phone company just delivered impressive third-quarter earnings. Verizon's net income fell 30% to $1.18 billion, beating analyst expectations. But unlike most "better-than-expected" earnings announcements, Verizon actually added to the top line – sales increased 10% to $27.3 billion... And as long as Verizon is expanding its sales, the company will thrive because it has plenty of room to cut costs. Says Porter:
On Verizon's earnings, the thing to watch is the company's ability to reduce costs. What most analysts don't realize is how much cheaper it will be going forward to maintain the new fiber-optic network as compared to the legacy copper network.
The company has been spending billions of dollars building out its fiber-optic network. As it reaches completion, Verizon can start shedding jobs and reducing its massive capital expenditures. The company shed 4,000 jobs in its declining landline department last quarter and plans to cut the same amount this quarter. Meanwhile, shares are yielding almost 7% and trading for a laughably cheap 12 times earnings and three times cash flow. If Porter were penning the Digest today, I'm sure he'd close by repeating, "If you don't own Verizon, you can't call yourself an investor."
New highs: New York Times (NYT), Microsoft (MSFT), WD-40 (WDFC), Steak 'n Shake (SNS), Martin Midstream (MMLP), Nevsun Resources (NSU).
In the mailbag today, a comment from Steve Sjuggerud discussing the investment prowess of someone besides ourselves – a rarity. What other questions can we answer? Let us know... feedback@stansberryresearch.com.
"I was very dissapointed and surprised to see how BSX reacted to the downgrade and then its quaterly report last week. I was also surprised looking back that your recommendation has this stock listed as one of your least risky investments. (rated 1 on a scale of 1-10) 10 being the most risky in your investment advisory's recommended list...
Another thing that disgust me is that you and your company started pumping this company at least three months ago and continued to promote it right up until the bottom fell out... I looked for a e-mail update and or an update on BSX on the model portfolio. I was unable to find any current information from your investment advisory on this stock... I beleive you could do a better job of keeping your subscribers updated on the recommendations currently listed in your model portfolio." – Paid-up subscriber G. Starnes
Porter comment: You might not realize that the word "pump" has a very serious meaning when applied to financial publishing. There are firms that take cash and stock in exchange to promote stocks. These are so called "pump-and-dump" firms. We are not in that business. Our firm does not buy, sell, or trade any of the stocks we write about. And our analysts are not allowed to own the stocks they cover. So we have never "pumped" anything, much less shares of Boston Scientific.
Secondly, we published several extensive updates to our research on BSX last week. See last week's Digests. I don't think it's necessary to go over all of the details again in this response. But just to reiterate, we are very disappointed we didn't do a better job anticipating the political risk in BSX given the ongoing national debate about health care.
"Thanks for a great service in True Wealth – I enjoy reading your opinions and I trust your judgment and experience. I have a question for you on a more fundamental basis. In 2006 [Steve Sjuggerud] wrote a Daily Wealth piece saying you were opening an account with Rick Rules group in California. I wanted to ask you how this is performed and if you are happy with the customer service. Obviously, I don't want to know specifics however I want to know if you still recommend Rick's group as a place to put speculative cash." – Paid-up subscriber Chris
Sjuggerud comment: I didn't end up sending money to Rick Rule until December 2008. I'd procrastinated until then. But things were so cheap by the end of 2008 that I had to get some money to him. The account is up about 90% in less than a year. I think it holds the same simple investments most of Rick's other customers have.
As far as customer service, I actually try to stay out of their way... I don't tell a surgeon how to do his job, and I don't tell Rick how to do his. We do have lively discussions about investing. But we rarely talk specifically about my portfolio. Seriously.
Funny you ask now... Just last week, I sent Rick IRA transfer paperwork, which will give him two and a half times more money of mine to manage (and five times the original amount!). If actions speak louder than words, then that transfer just screams my opinion of Rick.
Good investing,
Sean Goldsmith
Baltimore, Maryland
October 26, 2009