Weekend Edition
The Best of The S&A Digest
November 7, 2009
 Longtime readers will recall Porter's strident warnings about the solar power industry and the sector's leading stock, First Solar.
As he began warning people in January 2008, the company has all of the hallmarks of a disaster in the making: a hugely inflated stock price ($200 per share back then), a core product that uses obsolete technology, backing from governments (which tend to be fickle partners), a management team more concerned with cashing out than sticking around... Here's what he wrote to his PSIA subscribers:
What will actually happen [to First Solar] is what always happens to very expensive stocks. Things go wrong. The price of oil and energy in general falls as the world slips into recession.
Suddenly, the idea of paying for solar panels seems dumb, given the low cost of energy and budgetary constraints on governments around the world. The global-warming fad fades. People forget. And First Solar ends up like so many other promising tech startups – busted.
On the day he wrote those words, First Solar was trading for more than $225 per share. In the past week, the stock has fallen more than 20% to $120. It missed quarterly revenue targets and its profit margins continued to decline.
There are far more efficient technologies in the market today, making First Solar's products uncompetitive. Alas, solar energy is simply a commodity... and making solar panels is turning into a very, very tough business. Don't worry though: Wall Street still says the stock is a "buy." Ha, ha, ha...
The big news this week – and all anyone wants to talk about – is Warren Buffett's new acquisition...
Buffett announced the largest acquisition in the history of his holding company, Berkshire Hathaway. The Oracle agreed to buy the remaining shares – he already owned more than 22% – of railroad Burlington Northern Santa Fe (BNI) for $34 billion. The deal values Burlington at $100 a share, about 30% above where it traded on Monday. From the press release:
"Our country's future prosperity depends on its having an efficient and well-maintained rail system," said Warren E. Buffett, Berkshire Hathaway chairman and chief executive officer.
"Conversely, America must grow and prosper for railroads to do well. Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry."
"Most important of all, however, it's an all-in wager on the economic future of the United States," said Mr. Buffett. "I love these bets."
The takeover announcement is great news for PSIA subscribers, who bought Burlington shares in April – just weeks after the bottom – and are currently sitting on a 50% gain. Porter recommended BNI shares for the same reasons Buffett finds them so attractive...
The company is entrenched as one of two dominant railroads in the western U.S., the replacement costs for its assets are enormous (meaning no new entrants could hope to compete), and the value of BNI's assets will soar with inflation. Porter wrote:
Burlington Northern Santa Fe Corp. (NYSE: BNI) is probably the best railroad in America for one main reason: Its track dominates the vast western United States. Nobody is going to duplicate these rail lines – and no one could.
If you want to move freight from anywhere on the West Coast to anywhere else in the United States, you've likely got to deal with BNI. And if you want to build anything in the United States (as OBAMA! clearly intends to do), you're probably going to use BNI's tracks.
Additionally, as inflation soars, the value of BNI's irreplaceable rail network will grow exponentially.
Porter's on a roll this year. He's made subscribers money on 10 of 11 recommendations. And his most recent PSIA recommendation is his favorite way to profit from the coming inflation – even more so than gold. He says this asset class is more attractive than it has been in "decades," and readers could make 600% once this asset reaches full valuation. To sign up for PSIA, and receive Porter's latest research, click here.
Regards,
S&A Research
Stansberry & Associates produces the daily S&A Digest, which comes free with a subscription to one of our premium products. To learn more about a risk-free trial subscription click here. |
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S&P 500 |
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Burlington Northern |
BNI |
26.47% |
Black & Decker |
BDK |
24.23% |
IMS Health |
RX |
21.65% |
Countries |
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|
Brazil |
EWZ |
3.64% |
China |
FXI |
2.27% |
Chile |
CH |
1.91% |
Sectors |
|
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Gold Mining |
GDX |
6.67% |
Biotech |
PBE |
4.43% |
Big Pharma |
PJP |
2.98% |
Commodities |
|
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Silver |
- |
+4.54% |
Gold |
- |
+4.03% |
Coffee |
- |
+3.86% |
|
S&P 500 |
|
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CVS/Caremark |
CVS |
-20.71% |
Whole Foods |
WFMI |
-18.20% |
Denbury Resources |
DNR |
-15.86% |
Countries |
|
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Thailand |
TTF |
-1.82% |
Australia |
EWA |
-1.70% |
South Korea |
EWY |
-1.67% |
Sectors |
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Financial |
IYF |
-2.08% |
Insurance |
PIC |
-1.61% |
Clean Energy |
PBW |
-1.19% |
Commodities |
|
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Natural Gas |
- |
-5.66% |
Nickel |
- |
-5.00% |
Cocoa |
- |
-3.25% |
Source: Bloomberg, Yahoo, StockCharts, XLQ 10/29–11/6.
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