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Up Over 400% and You Haven't Missed It YetBy
Tuesday, October 12, 2010
This investment has beaten just about anything you can think of since it started in 1997... including gold.
Even better, you haven't missed a thing. It is an incredible value right now. AND it's safe.
The stock actually hasn't climbed much at all since 1997... Almost all of the profits (over 400% of them) have come from "boring" dividends. No joke!
This chart below from the company's latest shareholder presentation tells the story... The blue line is the total return of the investment I'll tell you about today. As I said, it's beaten everything. The green line is the greatest living investor's company (that's Warren Buffett's Berkshire Hathaway). The other lines are various stock indexes. As you can see, it's crushed them all.
.gif) In my True Wealth newsletter, we've been successfully trading this stock for years. Here's what we do:
We buy when it's cheap and sell when it's expensive. Also, we buy when conditions are right for the company to make a lot of money, and we sell when they're not.
This stock is cheap whenever it trades close to its liquidation value (book value). As I write, this company is trading at just a 5% premium over its book value.
Conditions are right for this company to make a lot of money when the "spread" between short-term interest rates and mortgage rates is wide. Ever since the Fed cut short-term interest rates close to zero, that spread has been wide. So this company has been able to make a fortune.
Normally, the stock is not cheap when conditions are right for it to make money. Both criteria occur together less than a third of the time. But... when they do coincide, the stock compounds at a rate of 47% a year (including dividends).
Right now, we have both criteria in place. It's time to own this stock.
We have two ways of making money here...
First, because it's trading so close to its liquidation value. I expect it can easily rise 20% or more.
Second, because of the dividend. The stock is currently paying a 15% dividend. I'm not kidding. In a zero-percent world, it's paying a legitimate 15% dividend. (Even if falling mortgage rates force this company to cut its dividend to, say, 10%, it still beats anything else out there.)
Once investors "get it" and see the high dividends are not that risky, they'll buy up the stock for the dividends. Who doesn't want double-digit dividends in a zero-percent world?
I think you could easily collect a 15%-30% profit – including both capital gains and dividends – in this stock in the next 12 months.
The stock is my longtime favorite virtual bank, Annaly Capital Management (NLY). Buy it today and plan on holding for a year. Use a trailing stop to protect your downside risk.
If the gains come quick, the downside risk will be greater than the upside potential. So the safest course of action would be to sell once you have a total return of 30%, even if it comes in just a couple months.
We are not at the beginning of this trade... but it's definitely not over yet, either. For big dividends and a shot at capital gains, check out shares of Annaly.
Good investing,
Further Reading:
Back in April 2007, Steve first showed DailyWealth readers how virtual banks can make "ridiculous returns" in a short time period. His subscribers pocketed 60% in less than three years. In August 2007, he again told DailyWealth readers to buy virtual banks. Six months later, his recommendation, No. 1 virtual bank Annaly, had returned more than 43%.
We hopped back into the trade in February 2009. Eighteen months later, the four virtual bank stocks Steve mentioned have returned an average 49% (mostly through dividends). And we've continued hammering on this trade: in September 2009, February 2010, June 2010, July 2010, and August 2010. As you can see from today's essay, it's been the right call.
"Unless you want to live on nothing," Steve wrote recently, "you must roll up your sleeves, do your homework, and act." It's still not too late. So don't let the chance pass you by again.
Market NotesDON'T FORGET ABOUT THIS COMMODITY TREND... With gold and silver reaching new highs almost daily, precious metals are getting all of the "commodity press" lately... and folks are going wild to own the stuff.
But today's chart says, "Don't forget about the ag complex."
We like to track and trade agricultural commodities like corn, soybeans, and wheat because they are one of the favorite investment ideas of legendary contrarian investors Marc Faber and Jim Rogers. Like most assets, the "ags" were clobbered in the 2008 credit crisis... and they generally traded sideways from early 2009 to mid-2010. But as today's chart shows, this sector is moving higher.
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