Saturday, November 15, 2008
12% Letter editor Tom Dyson passed this note along: "Pennsylvania has a trillion-dollar natural gas reservoir underneath its surface called the Marcellus Shale. It's the hottest natural gas play in North America, and my readers are already profiting..."
Early this month, one of the companies in Tom's 12% Letter portfolio opened Pennsylvania's first natural gas processing plant. This plant will pump out the first gas from the Marcellus Shale and turn Pennsylvania into one of the nation's top-producing natural gas states.
In addition to its huge future growth prospect, this company is financially sound. It has increased its dividend 22 times in six years – most recently this week. The company announced a strong third quarter. And it said it has enough money to meet its expansion plans for 2008 and 2009, thanks to the $660 million it raised just before the financial system went into meltdown...
On top of all of that, it's yielding nearly 20%. I can't think of a better stock to own during the recession.
In his weekly New Yorker column, James Surowiecki told his readers, "Markets work best when investors are thinking for themselves, and tend to go awry when the obsession with what everyone else is doing becomes a dominant concern."
Surowiecki says we have more information than ever before, but our decision-making hasn't improved one bit. His point is well-taken. Vanguard released a study in September saying most active investors fail to beat the market. The study concluded the source of underperformance was twofold: market timing mistakes and high fees.
The solution: It's always the right time to buy great companies at cheap prices. Don't suck your thumb trying to time the bottom. It's impossible, and you'll lose money. Great investors buy great businesses at cheap prices at the top, the bottom, and everywhere in between.
I ran a screen for all U.S. stocks trading at or below 10 times enterprise value (market cap + debt – cash) to EBITDA (earnings before interest, taxes, depreciation, and amortization). EV to EBITDA estimates "takeover value," or what you'd pony up to buy an entire firm, and a 10 multiple is pretty cheap.
Currently, 2,424 companies in the U.S. meet the criteria. You may recognize some of the names: ExxonMobil, Wal-Mart, Microsoft, Johnson & Johnson, Verizon, Intel, McDonald's... the list goes on.
Goldman Sachs laid off 13 analysts as part of its 10%, 3,200-employee reduction. Some of the companies those analysts covered will be picked up by other analysts, but many will be dropped indefinitely. Among the companies losing coverage are Freeport-McMoRan (the world's largest publicly traded copper producer) and Peabody Energy (the world's largest publicly traded coal producer).
Goldman also fired the analysts responsible for covering the financial-services industry, shipping, newspapers, and other media. "We regularly match our research coverage to our resources and our clients' needs," said a Goldman spokesperson, and nobody is interested in these declining industries right now.
When investor sentiment gets so bad the world's premiere bank stops coverage on the world's largest publicly traded copper and coal companies, newspapers, and financial-services firms, it might be time to look into those industries.
This might be our "no duh" of the year award winner. With GM's stock trading below $5 – and after the carmaker disclosed it burned through $7 billion in cash and barely has enough money remaining to fund its operations – Deutsche Bank has downgraded GM to "sell," with a price target of $0. "Without government assistance, we believe that GM's collapse would be inevitable," the broker said. No duh.
Here's what I'd like to know from Deutsche Bank. How much money did the bank enable GM to borrow over the last 10 years? How much did it earn in fees for this banking? How long has it recommended GM's stock and debt to gullible investors, large and small?
If you're a client of any of the big investment banks – if you take their advice – you're an absolute fool. If you happen to work at Deutsche Bank and would like to defend your company's actions, please send us a note. We'd love to hear the rationalization.
Porter Stansberry writes and edits the daily S&A Digest, which comes free with a subscription to one of our premium products.
Date Range:11/6/2008 to 11/13/2008
Date Range:11/6/2008 to 11/13/2008