Barron's recently interviewed our friend Whitney Tilson. He says he's "very invested" and "very long." Tilson is buying two types of companies: those trading near or below liquidation value and those that had heavy hedge-fund selling and are trading at artificially depressed levels.
He gave three examples of companies with excellent balance sheets: Berkshire Hathaway (you can buy the operating business for three times pretax earnings), satellite set-top box company EchoStar Technologies, and teenage-clothing retailer dELiAs. According to Tilson, you can currently buy dELiAs for a 40% discount to its cash and investments. It has zero debt, and it's profitable. To read the full interview, click here.
Byron Wein of asset manager Pequot Capital gave his 10 predictions for 2009 on CNBC this morning. Like Tilson, he's bullish.
Wein expects the S&P 500 to hit 1,200, a 33% rise from here. And he thinks gold will hit $1,200 an ounce due to "disenchantment with paper currencies." The two other big predictions are oil going to $80 a barrel and home prices stabilizing by the second half of this year after a further 15% price drop. You can watch Wein's other predictions for 2009 here.
Thanks also to Tilson for forwarding us a December 24 interview with value investor Bruce Berkowitz of Fairholme Capital Management. Like most value investors, Berkowitz's Fairholme Fund (FAIRX) fell sharply the past year, down 29%. When asked what he expected of the stock market in 2009, Berkowitz answered, "We could be bouncing around the bottom of the market. But I don't know whether the true bottom will come in 31 days or 31 months. Prices today are as attractive as I have seen in my career, and it will be worth the wait for the market to deliver the true value of these companies."
Berkowitz's whole game as an investor is finding businesses at cheap multiples of free cash flow and then trying to "kill the business," or determine if there's substantial risk of reducing or eliminating those cash flows. That's as simple and, over the long term, as effective a strategy as a passive minority outsider can hope for.
Credit markets may be frozen and broken, but one lender is growing... The Navy Federal Credit Union said it expects to originate $6 billion of mortgages in 2009, about 5% more than 2008. The credit union serves Department of Defense military and civilian personnel and their families... and it doesn't make subprime loans.
High-grade corporate bonds will outperform other asset classes this year, according to a survey of financial professionals by the Financial Times. Exactly how safe is corporate credit right now? According to the FT, "US investment-grade corporate bond prices, for example, imply a cumulative default rate of 36 per cent over five years, assuming a typical recovery of 40 cents in the dollar... This is more than 7.5 times higher than the worst default rate in any previous five-year period."
To put things in perspective, the default rate for investment-grade bonds between July 2007 and July 2008 was 0.13% – a far cry from 36%. And these bonds are yielding around 6% compared to 2.5% for 10-year Treasuries.
But Steve Sjuggerud found a way to collect much higher yields in bonds, over 20%, by taking on a little more risk. The investment Steve found is "off the charts" attractive and hasn't yielded so much in over 20 years – as far back as his data goes. Even if things get way worse than they are now, you'll still collect huge yields and capital gains. He doesn't expect to ever see this opportunity again.
True Wealth subscribers already have access to Steve's latest report. If you're interested in receiving Steve's research, consider signing up for our Private Wealth Alliance. You'll receive Porter Stansberry's Investment Advisory, The 12% Letter, Doc Eifrig's new letter, the S&A Oil Report, and, of course, Steve's True Wealth for life. Best of all, you can access all these services for only $1. To learn more, click here...
Below, you'll find out one way to collect $25,000 in six weeks. How are you enjoying the "gravy"? Let us know at feedback@stansberryresearch.com.
"If the US dollar does, in fact, crash and we end up back on a gold standard at some point, what happens to the cash (american dollars) that I have in the bank? What would happen to stock shares denominated in US dollars? Would it be a total wipeout?" – Paid-up subscriber Rich Hanna
Ferris comment: I don't know. My guess is that, when the money system falls apart, all hell will break sufficiently loose that you won't care about the answers to these questions. So maybe don't just buy gold. Store up some guns and groceries, too.
"How does Michael M. Luxembourg breath with his nose so far up Porters... derriere." – Paid-up subscriber "one, of the two idiots"
Ferris comment: Not sure. Maybe scuba gear.
"Just wanted to mention I recently became an Alliance member. My wife, the antithesis of a risk taker, was a bit skeptical with the $7,600 price tag, and not that enamored still with the $2,600 rebate for individual subscribers. I told her with your ideas and research and my judgement and additional research applied, I would recoup the $5K rather quickly, and the rest would be gravy. On a few of your trades that made sense to me I'm up about $25,000 in less than 6 weeks, including a 335% three week return on a call option purchase and sale on SFD (I bought in a little lower and sold a bit higher than your exact recommendations). Thanks for the ideas. I'm enjoying the gravy." – Paid-up subscriber Michael C
Regards,
Dan Ferris
Medford, Oregon
January 6, 2009