We're bullish… This sector is finally rebounding… A potential 600% winner… Slow mailbag…
The benchmark S&P 500 stock index enjoyed a strong couple days so far this week... It finished Monday up 1.6% from its Friday close... and at its peak today, it was up 2.5% compared with where it finished last week. (The index gave back some of those gains in the afternoon.) The first rise in existing home sales in three months spurred the morning run-up.
Most of our analysts are bullish on stocks in general. And the recent jump could signal the beginning of a larger rally… Porter's been particularly bullish on financial stocks (including banks and insurance companies). He says they are safer than most investors think… because the world's governments will bail out these entities in tumultuous times, making them de facto sovereign credits. Plus, the money printed to save these institutions will drive inflation higher… which will make financial institutions even more profitable…
In Retirement Millionaire, Dr. David "Doc" Eifrig just recommended subscribers increase the percentage of their portfolios dedicated to stocks. (And he suggested freeing capital by reducing the percentage of fixed-income investments and "chaos hedges," like gold.)
As his subscribers know, Doc recommends the biggest and safest companies in the world across sectors like health care, financials, and technology. His favorite bank stock, which he rated a "strong buy" in his most recent issue, is up 2% today.
Unlike Porter, Doc isn't anticipating a huge round of money printing to boost the stock market. He thinks we could see years of slow, steady growth.
Steve Sjuggerud is bullish on insurance stocks… saying they're the cheapest they've been in 30 years. These stocks have been ignored as technology darlings – like Apple and Facebook – have stolen headlines. In the current issue of True Wealth, he wrote…
|
Nobody trusts financial stocks now... interest rates are so low, they can't earn much money on the money they bring in... 2011 was a terrible year of disasters, causing insurance companies to pay out large sums... and more. |
|
But these things are already "baked in"... |
Dan Ferris – who writes The 12% Letter and Extreme Value – is also bullish… He says terrible investor sentiment toward stocks is a contrarian indicator to buy. He sees great value in high-quality companies that dominate their competition, his so-called World Dominators. And one of his favorites is currently trading at a 40% discount to its book value.
Our trader extraordinaire Jeff Clark – who writes Advance Income and the S&A Short Report – is bullish for another reason altogether – technical analysis. In today's Growth Stock Wire, Jeff notes how oversold the market is. "If you've been anxious to put money to work in the stock market," he wrote, "now is the best time to do so since the beginning of the year."
Whatever their reasons, take note… Most of our top analysts are bullish on stocks. Meanwhile, the average investor continues pulling money out of stocks in favor of bond funds…
Buying bonds over stocks today is crazy. Ten-year Treasurys and triple-A-rated corporate bonds (generally viewed as the safest fixed-income vehicles on the market) yield around 1.1% and 2.3%, respectively, after taxes. Assuming inflation is running at 3% – and our guess is it's even higher – you're losing money every year in bonds.
So you can buy bonds and lose money guaranteed… or you can buy the world's best businesses at reasonable valuations and collect dividend yields that are one to two percentage points greater than Treasurys… Plus, these businesses can raise prices to compete with inflation. Which side of the bet do you want to be on?
This year, many of our analysts have been bullish on gold stocks… And yet despite the broad market rally, gold stocks have struggled. It's frustrating watching a position turn against you. It's especially frustrating when you know your analysis is correct…
But sometimes, when a sector gets oversold like this, it creates an environment of limited downside risk… and huge upside potential. We think this is what's happening in gold stocks today.
Our editor in chief Brian Hunt explained this phenomenon in last week's Digest. He calls this low-risk/high-reward setup the "Holy Grail."
|
Investors and traders should always be on the lookout for "huge upside potential, little downside risk" positions. These are the positions you can put "real money" into. If an investor or trader takes ONLY these kinds of positions, getting rich is almost inevitable. You virtually can't lose. – Brian Hunt, May 9, S&A Digest |
Gold stocks first drew our attention earlier this year because they were incredibly cheap compared to the price of gold. High gold prices increase the value of a resource company's assets and boost a producer's bottom line. That should eventually be reflected in the stock price.
And yet, the divergence between gold and gold stocks continued widening (as we'll show you in the chart below). But the trend changed last week…
Gold stocks, as measured by the Market Vectors Gold Miners Fund (GDX), are up for the past six trading days in a row. The fund – a collection of the world's premier mining companies – jumped from $39.34 on May 15 to as high as $43.50 at one point today – an 11% increase. Meanwhile, gold is up around 1.6%.
At the beginning of the year, Jeff Clark – one of our analysts who is bullish on gold stocks – noted gold stocks were trading at their cheapest prices since the 2008 financial crisis… You could buy some mining stocks for the cash on their books (meaning you get all the upside of the actual gold in the ground for free). But gold stocks kept falling. Even so… earlier this month, Jeff put out one of his strongest "buy gold" calls yet.
|
If I don't recommend getting aggressive with the gold sector now, I'll regret it by the end of the year. So I am pounding my fist as I type this: Investors should buy gold stocks. |
Now, the market is moving in his favor. But gold stocks are still cheap. And you still have time to make huge returns on this rally.
In his most recent S&A Short Report (published today), Jeff notes a breakout in the chart showing the performance of gold versus gold stocks. (As we said above, gold stocks have lagged behind gold all year.) He wrote…
|
[This breakout] is the first ray of sunshine we've seen in the sector in over a year. The best time to own gold-mining stocks is when the stocks are outperforming the metal. In other words, you want to own gold stocks when this chart is rising. We may have finally turned that corner last week. |
We don't think gold stocks have much downside left... And the sector has huge upside potential. The trade Jeff recommended in his latest S&A Short Report has huge potential. He traded this gold stock last October and made 100%. This time, he thinks the trade could return more than 600%. We know that number sounds crazy, but it's a reasonable expectation… The stock only has to rally to its price from three months ago.
You can sign up for the S&A Short Report and learn how to take advantage of the rebound in gold stocks by clicking here (without having to watch a long video)…
New 52-week highs (as of 5/21/12): Vanguard Inflation-Protected Securities Fund (VIPSX) and Wal-Mart (WMT).
One subscriber writes in with kudos for the Friday Digests. Otherwise, not much in the way of feedback. Send your notes – good or bad – to feedback@stansberryresearch.com.
"Many thanks for your last three Friday Digests. They were all fantastic, and I appreciate your emphasis on the education. Please keep it up. I'm sure many of us are grateful for the learning opportunity. I hope your back is feeling much better." – Paid-up subscriber CL
Regards,
Sean Goldsmith
New York, New York
May 22, 2012