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Weekend Edition

A trading idea for "serious" money
Saturday, June 2, 2012

 As you may know, Stansberry & Associates publishes research on many different financial ideas... from safe corporate bonds to junior mining stocks... from stock options to blue chips.
 
With our more speculative recommendations, our chief concern is that some readers will buy too much. They'll take on position sizes that are too large for their portfolios. They'll buy 1,000 shares when they should buy 200 shares. They'll buy 20 options contracts when they should buy two. Taking excessive position sizes vastly increases risk. It's one of the biggest causes of investor "blowups." These are losses that can ruin a family's financial situation.
 
That's why we go to great lengths to educate readers on proper position sizing. (You can read this free interview with our sister site The Daily Crux for more on this topic). We emphasize this idea so often, many of our readers groan in response and think, "Ugh... not this position-sizing stuff again..." 
 
But from time to time, we run across opportunities that offer such great upside... and tremendous safety... that our fear is, you won't consider buying enough. These ideas don't come around often. Some years, you don't see any. Some years, you see maybe one or two. To compile a successful long-term investment record, it's imperative to seize these "slam dunk" opportunities... and take advantage of them with "serious money."
 
For example, back in 2006, Porter Stansberry wrote one of the best newsletter issues ever published. In that issue, he encouraged readers to buy as much Budweiser stock as they could reasonably afford. Porter pointed out that Budweiser was one of the world's elite brands... and one of its elite businesses. The company sported huge returns on capital. It dominated its market... and it regularly rewarded investors with cash dividends and share buybacks.
 
The dominant blue chip was trading at such a cheap price, it would have been extremely hard to lose money as an investor. These are the situations you can put serious money into... not a volatile mining or biotech stock.
 
Thus, Porter told readers his fear was that they wouldn't recognize the scope of the opportunity... that they wouldn't take a big enough position. It was the quintessential "pound the table" buy recommendation... and it turned out to be an incredible call. Porter's readers made 78% in less than two years when global brewing giant InBev purchased Budweiser. And mind you, that huge gain came on an extremely safe position.
 
We tell you this story because we believe investors have another opportunity right now that merits a larger-than-normal position size. It's with software giant Microsoft. Microsoft has a near-monopoly position in the computer software market. This dominant position allows it to sport giant profit margins... And it allows it to generate immense amounts of free cash flow... which it passes on to shareholders.
 
Our resident value and blue-chip expert Dan Ferris, editor of Extreme Value and The 12% Letter, recently updated us on Microsoft...
 
Microsoft is one of the safest stocks in the world. It's got over $59 billion in cash and investments and less than $12 billion in debt. It could pay off its debts four times over and still have more than $11 billion left.
 
Microsoft is relatively boring. It keeps earning gross margins around 80% – as it's done for decades. Its hold on PC software is perhaps the No. 1 all-time death grip competitive position ever held by any business. It's got 90% of the PC software market, via its Windows and Office products.
 
It gushes massive sums of cash quarter after quarter, year after year. In the first quarter of 2012, Microsoft's sales were $17.4 billion, and it generated $8.8 billion in free cash flow.
 
On top of that... Microsoft is incredibly cheap – valued at less than seven times trailing free cash flow. That is absurd. It's the kind of valuation you assign to a small, private company that has a hard time getting a loan. A company that dominates its industry with a 90% market share should be valued at double this level.
 
Microsoft is a dream investment. I dream of the S&P 500 going to less than seven times free cash flow and staying there for the rest of my life. It would be so easy to make a bloody fortune that way. But Microsoft is one of the very few companies that actually fits my dream scenario... a wonderful business that stays super cheap.
 
Being cheap isn't good because it means the share price will go up. Being cheap is good because it means you can buy much more of the present value of the Amazon river of future cash flows coming out of this business. It truly doesn't get any better than Microsoft below $30.
 
Dan is "pounding the table" on Microsoft shares for his readers... and we sincerely hope you are taking notice. We're confident Microsoft will allow readers to safely compound their money for years and years. But some readers of our new DailyWealth Trader service are using this extremely safe stock to generate a huge income stream in their conservative portfolios...
 
 Editor in Chief Brian Hunt and co-editor Amber Lee Mason just showed their readers how to make an annualized 84% return on a safe position in Microsoft. We can't emphasize enough how this is a truly unusual opportunity. Huge upside... very little downside. Thus, it's a trade you could put serious money into.
 
Even if you don't take this position, you owe it to yourself as an investor to at least learn how this type of trade works. If you make just one of these "huge upside, very little downside" trades, we guarantee you'll never want to invest conventionally again. You can learn how to access the details of this "serious money" Microsoft trade immediately (without watching a long video) here. And you can learn all about this amazing type of trading style from this video. Click here to watch it.
 
Regards,  
 
S&A Research




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