Think Twice Before Buying This 'Safe Haven' Today
Last call for the Bear Market Survival Event... Think twice before buying this 'safe haven' today... The opioid backlash is here... How to profit from 'Big Tobacco' 2.0...
We'll begin today with an urgent reminder...
If you missed our first-ever Bear Market Survival Event last week – hosted by Porter and legendary investor Jim Rogers – this is your last chance to view it.
The free video replay of this event will be taken down promptly at midnight Eastern time tonight.
If you'd like to hear why the next bear market could be the worst of our lifetimes... when it's likely to arrive... and most important, exactly what you can do to protect yourself and profit from it... click here right now.
Speaking of protecting yourself from a bear market...
Utilities stocks have long been considered "safe haven" assets during times of market turmoil. As our colleagues Ben Morris and Drew McConnell noted to their DailyWealth Trader subscribers this morning, there's good reason for this...
No matter what happens with stocks, the economy, or interest rates, there's steady and reliable demand for electricity, gas, and water. So utilities companies are relatively stable.
Plus, utilities tend to pay market-beating dividends... Over the past 12 months, the $9 billion Utilities Select Sector SPDR Fund (XLU) paid shareholders 3% in dividends. For comparison, the companies in the benchmark S&P 500 Index paid an average of 2% over the past 12 months. So XLU offered shareholders 50% more income.
But there's something you should know if you expect utilities to help you in the next correction...
Based on history, anyone buying these stocks today is likely to be disappointed. More from Ben and Drew...
A 3% dividend may look good relative to the S&P 500. But it doesn't look as good when you compare that yield with XLU's own history.
The longer-term chart below shows XLU's share price (the black line) and its dividend yield (the blue line). As you can see, its yield is now the lowest it has been since 2008. And the last three times its yield has fallen to this level – about 3% – XLU's rallies have stopped cold. The fund dropped and its yield jumped...
Those three pullbacks may not seem too large in the context of its uptrend. But they were 17%, 13%, and 16% drops, respectively. All three were larger drops than the S&P 500 experienced around those same periods. (We should note that XLU did drop only 9% at the end of last year, when the S&P 500 dropped 20%.)
In other words, utilities stocks do sometimes serve as safe-haven assets...
But like other assets, when you buy them can be critical. And with yields as low as they are today, Ben and Drew believe this is one of the worst times to buy in the past decade...
Extremes can get more extreme, of course. Utilities offered a lower yield at the market's peak back in 2007. But they didn't protect shareholders then... XLU dropped 49% from its 2007 peak to its 2009 low. (That was only eight percentage points better than the S&P 500's 57% drop.)
We remain bullish on U.S. stocks. Yet we still recommend holding a percentage of your wealth in "chaos hedges" like precious metals, cash, and when the time is right, utilities.
But now is not one of those times. Utilities may look good at first glance. Look a little closer, though, and you'll see lightning may be about to strike... For now, we suggest you steer clear.
Switching gears, most readers are probably familiar with the U.S. opioid crisis by now...
In short, opioids are addictive pain medications that first gained widespread use in the 1990s. They were originally used primarily to treat patients who had undergone surgery or cancer treatment.
But over the past 15 years – thanks in large part to aggressive marketing by drug companies – opioids became a "go to" pain medicine. Doctors prescribe them for a number of chronic conditions, like joint and back pain.
Today, opioids are now the most prescribed form of medicine in the U.S., with almost 200 million prescriptions per year.
So, it's little surprise that opioid addiction has also skyrocketed...
According to consulting firm McKinsey, somewhere between 4 million and 6 million Americans are addicted to these drugs today.
Nearly 400,000 Americans died from opioid overdoses from 1999 to 2017, according to the U.S. Centers for Disease Control and Prevention. And unfortunately, it's only getting worse...
In 2017 alone – the last full year for which data is available – more than 70,000 people died from drug overdoses in the U.S... And nearly 70% of those were attributed to opioids.
All told, experts expect another 500,000 Americans will die from an opioid overdose over the next decade. And the death toll may not peak for years...
But this crisis isn't just costing lives...
As our colleague Bill McGilton explained to Stansberry's Big Trade subscribers last month, this crisis is also creating a huge financial burden as well. From the April issue...
It's estimated that the government spends between $20 billion and $37 billion a year on health care, criminal justice, and child and family assistance related to opioid abuse.
But once you start including things like lost productivity of workers, absenteeism, and avoidable hospital and emergency room use... the estimated economic impact is closer to $80 billion a year, according to the Centers for Disease Control and Prevention...
As Bill explained, these costs are piling up for families, states, and local governments...
And more and more, they're turning to the courts for a solution.
To date, plaintiffs have brought around 2,000 lawsuits accusing various companies in the pharmaceutical supply chain of fueling the opioid epidemic.
This trend is already putting some of these companies under serious pressure. For example, just this month, drugmaker Insys Therapeutics (INSY) said it may file for bankruptcy due to legal costs. The company agreed to a $150 million settlement with the government last August to resolve claims that it paid doctors to prescribe its powerful opioid spray, Subsys.
But Bill believes the consequences for the pharmaceutical industry are likely just beginning. More from the April issue of Stansberry's Big Trade...
The current opioid litigation has become so large – with thousands of cases in state and federal courts around the country – that there's speculation it will turn into the next "Big Tobacco" litigation. In 1998, the four largest U.S. tobacco companies agreed to pay $246 billion to settle claims against them.
Bloomberg Intelligence reviewed past controlled-substance violation settlements and estimates that the [biggest targets] as a group have potential opioid-related liability up to $5 billion...
The payouts for damages and penalties for [these companies] will likely be at the high end of the $5 billion range – or even more. The claims in these cases go much further than just negligence (dereliction of duty). Plaintiffs are making claims of fraud and racketeering and that [the companies] acted with purpose.
Bill has identified one company in particular that could receive the lion's share of these penalties...
This company could ultimately be forced to pay up to $2 billion in fines and settlement expenses, in addition to hundreds of millions in legal fees. Worse, it's already operating on razor-thin profit margins in an increasingly competitive market.
Yet, despite these massive and growing risks, the market is not yet concerned. Shares are still trading at about the same price they were last summer.
But Bill doesn't expect that to be the case for long. Sooner or later, the market will wake up to these risks. He believes shares could plunge by 60% or more over the next few years... and he recommended a trade that could return more than 400% when they do.
If you're not already a Stansberry's Big Trade subscriber, it's not too late to take advantage of this opportunity. In fact, because this company's shares have actually ticked higher over the past few weeks, Bill believes it's an even better trade today.
Learn more about a subscription to Stansberry's Big Trade right here.
New 52-week highs (as of 5/22/19): Axis Capital (AXS), Hershey (HSY), Motorola Solutions (MSI), W.R. Berkley (WRB), and Aqua America (WTR).
A relatively quiet day in the mailbag. What's on your mind? Drop us a line at feedback@stansberryresearch.com. Good, bad, or ugly, we read it all.
"I do not like Stansberryreasesrch." – Paid-up subscriber Arun D.
Brill comment: Noted.
Regards,
Justin Brill and Corey McLaughlin
Baltimore, Maryland
May 23, 2019