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Weekend Edition
The Best of The S&A Digest
July 5, 2008
 From a reader: There are some great prices on Verizon, Coke and many more of the solid ultimate survivors. But won't even these great defensive stocks be a lot cheaper in six to 12 months?
That's certainly a possibility. On the other hand, the highest-quality Dow stocks very rarely trade at such incredibly low multiples of earnings.
Consider Verizon, which is the highest-quality telecom firm in the world. It is now trading for four times the cash it earns each year. And it's paying a totally safe 5% dividend. Could the share price fall more? Yes, anything is possible. But buying Verizon (and other super high-quality blue chips like it) at these prices is sure to earn you a high rate of return over any reasonable length of time.
I don't believe you'll be able to perfectly time the bottom in this, or any other market. And you don't have to try. All you have to do to make a fortune in stocks is buy the best companies at good prices. You have that opportunity right now.
My PSIA portfolio is now loaded with the highest-quality businesses you can possibly own... and you can buy most of them for peanuts. In fact, if you buy the handful of stocks that carry my highest rating for safety and capital gains right now, they will far outperform anything else you could possibly do with long-term money.
If you're ready to hold your nose and buy bank stocks, M&T Bank and Bank of New York Mellon may be the ones to buy. According to data compiled by Bloomberg, M&T Bank and Mellon are the only two banks in the S&P 500 projected to raise dividends. Both companies reported 15% gains in first-quarter profits.
Meanwhile, more than a dozen other U.S. financial institutions lowered dividends in the past year – more than the past five years combined – and lost or wrote down more than $400 billion in assets.
Oil hit an all-time high of $142 a barrel, but the Russians think it's going higher... Alexey Miller, CEO of Gazprom – the world's largest natural gas company – believes we're undergoing "a great surge in oil and gas prices, which will end with prices at a radically new level." And Miller predicts his company will be the "most influential in the energy business," with a market cap of $1 trillion.
Signs of a top in oil... Having a nice car isn't enough for Middle Easterners anymore. And they have plenty of nice cars – the UAE, with a population of just 4.6 million, is one of Rolls-Royce's top five global markets. Now, oil-rich Arabs are spending millions on license plates.
One Abu Dhabi businessman made the Guinness Book of World Records when he paid $14 million for a license plate sporting "1." (Click here to watch the auction.) The man's cousin, an Arab stockbroker, paid $9 million for "5," the second-largest sum ever paid for a license plate. There are still plenty of three-digit plates left, but you're going to pay at least $175,000 at auction.
We're not the only analysts on the GM story anymore. In last weekend's Barron's, Randall Forsyth noted in the opening essay: "GM stock actually traded as low as $11.21 Thursday, a depth that hadn't been plumbed since 1955, when the Dow was in the 400s..."
Now Merrill Lynch says GM will require $15 billion in cash to stay afloat. And "bankruptcy is not impossible." Longtime readers will recall we've been saying the same thing, much more directly, since January 2007. What's more interesting, though, was the speed of Merrill's change of heart.
Up until Wednesday morning, the leading stockbroker in the United States had insisted GM's common stock was a "buy." Now suddenly, the price target is $7, the rating is "sell," and the company might file for bankruptcy.
We published our second quarterly Monthly Dividend Program Top 10 portfolio this week. Our portfolio consists of 10 high-yielding securities covering energy, bonds, conventional stocks, and REITs. It's currently yielding 9.18%.
We're extremely pleased with the performance of this service so far. Last quarter's Top 10, released April 1, has returned 3% in three months. The S&P 500, meanwhile, has plummeted... down 6.3% over the same period. We set the portfolio up to manage just such a downturn, while still throwing off big income payments. It's done exactly as planned..
Signs of a top in commodities... Hundreds of 200-pound manhole covers are disappearing across the U.S. Steel prices have increased from $329 per metric ton in January to $519, and a thief can get between $10 and $15 per cover.
I sincerely hope you've followed our bear-market warnings. If you're short a few stocks, selling covered calls on your core long-term holdings, holding some gold (or silver), and following your stop losses, you're probably doing a lot better than the market.
Good investing,
S&A Research
The S&A Digest is written by Porter Stansberry, Dan Ferris, and Sean Goldsmith. |
