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Weekend Edition
The Best of The S&A Digest
January 17, 2009
 Another big payoff in the medical field... This week, Abbot Laboratories (ABT) paid $2.8 billion, or $22 a share, for Lasik eye-surgery equipment developer Advanced Medical Optics (EYE). If you owned shares of EYE, you made 143% on your money in one day.
Phase 1 analyst Rob Fannon assures us these big takeovers aren't an anomaly – we'll see tons of them this year. Big medical companies have more cash than they can spend, and hundreds of smaller medical companies need cash to survive. Rob is currently working on a list of companies with great drugs and debt problems that are likely to be bought out this year... Each company on this list could potentially double your money.
How likely is he to pick the companies that will be acquired? Well, so far this year, our biotech analysts have picked 70% of them... The two most recent takeovers produced triple-digit gains for subscribers.
We're about to enter one of the largest biotech bull markets of our lifetime, and early investors will make outrageous sums of money.
Here's the real advantage of a good recession/panic/
depression: most of the things we want have gotten a lot cheaper. Take stocks, for example. Jim Grant noted in his recent Interest Rate Observer that eight blue-chip companies now meet or exceed Ben Graham's strictest criteria for defensive investors: Pfizer, Nucor, Cooper Industries, Cintas, Tiffany, Archer Daniels Midland, Molex, and RadioShack.
These are like superhero investments. Each has 10 consecutive years of net profits, 20 consecutive years of uninterrupted dividend payments, earnings growth in the past decade of at least 33%, and price-to-earnings and price-to-book multiples of less than 15.
For perspective, Grant notes that at the bottom of the Nasdaq bust in 2003, only two stocks met all those criteria. At the bottom of the market in 1991, only six qualified. (Since 1991, those six produced average annual returns of almost 19%.) If you bought just these eight stocks and forgot about them for a decade, chances are better than 90% you'll make a substantial return and beat the market. Usually, that's a lot harder to do.
Pretty much everything else we want is much cheaper now, too... big old convertible cars, condos in Miami, prime steaks, first-class airfare, grand cru wines. We love a good recession.
I spoke with a local furniture salesman recently. He works on commission for one of the biggest furniture retailers in the country. He confided that he made $46,000 in 2007, and only $22,000 in 2008. In the last 30 days, he made just $1,000, which he says hasn't happened since he started selling furniture eight years ago.
Right now, his employer is so desperate, the company is literally giving away free money: 0% financing with no minimum payment for 12 months. The catch is that, if you don't pay it off in 12 months, your interest rate goes to 21.9% – retroactive to the date of purchase. Imagine all the folks who'll spend $2,000 only to suddenly have a balance of more than $2,400 staring them in the face. My friend's company could wind up with a lot of scratched-up 13-month-old furniture coming back a year from now.
Sounds just like housing, doesn't it? Cheap financing suddenly gets expensive, resulting in a tsunami of defaults – subprime, teaser-rate, option-ARM furniture financing. This will appeal precisely to those who ought to avoid it.
We're starting to see some life in the corporate-bond market... There was $41 billion in corporate-bond issuance last week – the most in eight months and nearly equal to all bonds issued in September and October last year. January is historically a strong month in the bond markets, as investors come back after Christmas. But this year was particularly strong – in the same week last January, total issuance was $32 billion.
True Wealth readers know Steve Sjuggerud is wildly bullish on corporate debt, especially "high-yield" debt. You can collect 20% yields in high-yield debt now. And there's a chance for capital gains, too. The enormous yield and profit potential more than make up for the added default risk. The chart below, from Steve's January issue, shows just how attractive these bonds are...
This is truly a once-in-a-lifetime opportunity to safely collect 20% yields.
Regards,
S&A Research
Porter Stansberry writes and edits the daily S&A Digest, which comes free with a subscription to one of our premium products.
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