Weekend Edition
The Best of The S&A Digest
Shares of Medical Investor pick McKesson (MCK) soared this week after the company announced growth across the board. The drug distributor saw double-digit growth in its flagship wholesale business. McKesson trounced analyst earnings estimates and also improved its earnings outlook for 2008. The good news earned the company a "buy" upgrade from a Citigroup analyst.
Of the 15 stocks in Rob's Medical Investor portfolio, only two are down. His service has one of the best track records in the business, period. Rob's newest recommendation is something very few people outside the medical community have ever heard about – an income opportunity that's been called "the biggest government giveaway ever." Click here to read more about it.
Like a pig hunting for truffles, Merrill Lynch (MER) seems to have a nose for finding trouble... and then stepping in it.
You may remember that during the last Wall Street crisis, Merrill woke up in bed with Enron the morning after the tech party. It had helped Enron hide its debts and rig its books. Before that, Merrill invested heavily in Long Term Capital Management, which then blew up and required a several-hundred-billion-dollar government-organized bailout.
And now Merrill must deal with its mortgage hangover. Luckily for Wall Street's bankers, they've got Fed "Tylenol." More easy money is on the way.
What's most interesting to me about the whole mortgage mess is the share price of Goldman Sachs (GS): It hit a new high this week. Which do you believe is more likely: The managing directors at Goldman Sachs are incredibly superior to every other investment bank in the world, or the firm simply hasn't come clean yet with the real value of its mortgage holdings?
S&A Oil Report pick Transocean (RIG) jumped 7% in two days after tripling its earnings to $973 million for the quarter. The offshore drilling giant is fetching $500,000 per day for some of its rigs. The stock is at an all-time high, and readers are up more than 20% in just two and a half months. Click here to read some of Matt Badiali's latest research.
Platinum reached $1,458 an ounce in London today – $2 short of an all-time high – on fears that mine closures in South Africa (the world's biggest producer) will worsen, restricting production.
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This from Extreme Value editor Dan Ferris: "Bowater is merging with Abitibi (ABY), so it has to be replaced in the S&P Midcap 400 index. What do they replace it with? Chipotle Mexican Grill – up 158% the last 52 weeks. The indexes are all about the momentum. Buffett and Bogle are right that know-nothing investors ought to buy index funds. But that's only because the larger indexes have low turnover (in the single digits), whereas the average mutual fund turnover exceeds 100%. And that, after all, is the single easiest-to-get advantage over other investors: low turnover."
As everyone knows, the Federal Reserve cut short-term interest rates this week – again. Doing so, we're told, will reduce the chance of a recession. Much less commonly discussed is the role the Fed plays in making sure the fools on Wall Street (most of whom, it seems, work at Merrill Lynch) don't go bankrupt. And even less well understood is how the expense of fixing Wall Street's balance sheets is passed along to you and me, via inflation.
So... here's a tip: As the Fed cuts, look for commodities of every stripe to soar, the dollar to fall, and truly outrageous stock market bubbles to form in the countries of our largest trading partners. Will the average American ever figure out the connection between the price of gas – and just about everything else – and the size of Wall Street's write-offs and Congress' budget deficits? Probably not in my lifetime.
We've said it many times over the last two years: If you don't own shares of Verizon (VZ), you shouldn't call yourself an investor.
The company is spending about $18 billion per year to install passive, optical network connections directly to homes. In short, Verizon is replacing an old, expensive-to-maintain copper network with a vastly more efficient and incredibly long-lived fiber-optic network that's almost costless to maintain. (The company also owns a majority stake in the best American wireless provider, Verizon Wireless.) In the third quarter, revenues were up 6% and operating income reached $4.2 billion, up 20% from last year.
Subscribers who bought the stock at $31 early in 2006, when I recommended it in my newsletter, will earn more than 8% this year in synthetic yield (cash dividend + buyback) alone. So, through Verizon, we're building a national fiber-to-home monopoly, and we're getting paid 8% a year (and growing) during the construction. Sooner or later, Wall Street will wake up to the value of these assets – and we'll be holding a ten-bagger.
Regards,
Porter Stansberry
