Saturday, June 30, 2007
What subscribers really want to know... we frequently can't tell them... They want three or four stocks they'll never have to sell, that will go up steadily with nary a down day, making them wealthy enough to afford all of life's pleasures. They think we know which stocks to buy... Sometimes we do.
Bloomberg said RadioShack (RSH) is one of the two top-performing stocks in the entire S&P 500. I wanted to pull my hair out...
I identified RadioShack as a world-class investment about a year ago. It was dirt-cheap – trading for about six times cash earnings. It has a terrific competitive advantage – it operates more than 7,000 RadioShack locations, one within five miles of 95% of the U.S. population. Best of all, to me, Wall Street hated the stock: It was one of the most heavily shorted on the market. These factors led the company's management to buy back stupendous amounts of stock – nearly 30% of the float over the last five years.
If you'd asked me when I recommended the shares, I would have told you that RadioShack was the kind of stock everyone should own: It was totally safe, it was set to soar on valuation and buybacks, and eventually Wall Street would reverse its opinion of the stock, setting up the opportunity to make 30%-50% per year for the next five years.
It was perfect... until the CEO admitted having lied on his resume. Uncertainty about the company's leadership caused the shares to fall from $25 all the way to below $14. We were "stopped out" at a loss. Today, the stock is sitting near $35 per share... about 50% above where I initially recommended it.
Even when you get everything right about a business... sometimes it doesn't work out as an investment. Life's not fair, is it?
"What happens in Vegas, goes to China," reports The Wall Street Journal in response to the news that Las Vegas Sands Corp (LVS) is building a $2.2 billion "Venetian" casino in Macau. The casino will replicate its Nevada namesake, but will be 30% bigger, with 1 million square feet of high-end retail shops. That's "an area big enough to host simultaneous football games by all 32 teams in the NFL," the paper reports.
Of course, our own Steve Sjuggerud recently returned from a trip to Macau and has found the single-best way to take advantage of the booming real estate trend. Sjuggerud Confidential subscribers can find the details in the May 2007 issue, called The Greatest Growth Story on the Planet. If you'd like more details on the situation, click here.
Bond king Bill Gross predicts that the subprime crisis will leak out of the housing industry to hurt consumption and new home building. Gross expects the Fed to cut rates to deal with the problem within the next six months.
Signs of a market top... Analysts of Chinese securities are the most bullish they have been in a decade. Total buy calls from local and foreign analysts rose to 67.4% of all ratings this month, the highest since Bloomberg began collecting the data 10 years ago. Sell calls make up 10.3% of all ratings, the lowest percentage in a decade.
Extreme Value pick ExxonMobil (XOM) and S&A Oil Report pick ConocoPhillips (COP) both rejected deals to stay in multibillion-dollar projects in Venezuela. Late Monday, ConocoPhillips announced that it would walk away from its holdings in the Orinoco Valley. The abandoned projects account for 101,000 barrels of oil equivalent per day, or 4% of Conoco's output.
This news brings two things to mind... First, if you believe (as I do) that the U.S. government in general, and our foreign policy in particular, is the pawn of large multinational corporations, right about now is when the CIA will act to overthrow Chavez.
Second, we noticed that our friend Mohnish Pabrai has continued to add to his position in Harvest Natural Resources (HNR). HNR is an oil company whose sole operations are in Venezuela. While the big boys are moving out, HNR cut a deal to operate dozens of additional wells on behalf of a new joint venture it established with the Venezuelans. Last year, at our S&A Alliance meeting in Aspen, Pabrai told us the stock fit his strategy perfectly... and we've been watching it closely since.
Date Range:6/21/2007 to 6/28/2007
Date Range:6/21/2007 to 6/28/2007