Britannia Radio

Dear Daily Crux reader,  What if there was a way for ordinary folks to invest alongside some of the smartest minds on Wall Street… and take advantage of the low-risk, high-reward opportunities usually off-limits to all but the wealthiest investors and money managers?  Would you be interested?  Well, our friend and colleague Frank Curzio – editor of Small Stock Specialist and host of S&A Investor Radio – says that's exactly what he's found. And he's excited about it. Regular readers know Frank worked for one of Wall Street's richest hedge-fund managers before joining Stansberry & Associates. He's presented his ideas on networks like CNBC, CNN Radio, and Fox Business News… So when he says he's excited about an idea, we always take notice. In fact, he's so bullish about this idea, he's agreed to "break the rules" and share this subscriber recommendation with Crux readers today. Read on for all the details… Good investing,  Justin Brill  Managing Editor, The Daily Crux  www.thedailycrux.com

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The Daily Crux Sunday Interview  How you can profit alongside the best investors on Wall Street The Daily Crux: Frank… You recently recommended a stock to profit from what you call "one of the world's greatest trends." Can you tell us about this opportunity?  Frank Curzio: Sure, I'd be happy to. For me, the story starts with the European debt crisis. Over the past few years, we've seen the destruction of huge amounts of capital in the economies of countries like Greece, Spain, Italy, and Portugal. Companies in these countries have struggled. Many have had trouble raising cash. New regulations forced banks to sell their risky assets for less than $0.50 on the dollar. It's been an unfortunate situation for many living there, but it's also created huge opportunities for smart investors to pick up "distressed assets" – things like equity stakes in struggling companies or bank-owned real estate – at fire-sale prices.  When I first explored this idea last year, I thought it could be one of the world's greatest trends… and I still believe that's the case. Of course, buying distressed assets in Greece or Italy isn't like buying a foreclosed house down the block. Considering all the different laws, regulations, and customs you need to know to be successful, it's next to impossible for individual investors to participate directly. But that doesn't mean individual investors are out of luck. There's actually a simple way anyone can invest in these opportunities and others like it, alongside some of the greatest investors on Wall Street. And it's one of the recommendations I'm most excited about today… Crux: I'm sure some readers are thinking that sounds a little too good to be true. Can you explain?  Curzio: Sure… What I'm talking about here is an industry called "private equity." Most people have probably heard that name, but they might not know exactly what it is. It's pretty simple… The private-equity market consists of large investors, institutions, and funds that invest money directly into private companies or "buy out" publicly traded companies and take them private. They often focus on buying "distressed" assets (like struggling companies or foreclosed real estate like I just mentioned) below market value and selling them at much higher prices. Most of the private-equity market is off-limits to the average investor, but there are a handful of these companies that trade on the public markets, where investors can buy their shares like any other common stock. And there is one of these stocks in particular I'm especially bullish on today: Kohlberg Kravis Roberts (KKR). This company has been around for 35 years, has over $60 billion in assets under management, and has a global presence through funds and individual investments in the U.S., Asia, and Europe. Crux: Why do you like this company in particular?  Curzio: First, the company started a "special situation" fund last year that is investing exclusively in distressed assets around the world, like the opportunities in Europe I mentioned earlier. This is what first interested me in the company. This is a long-term strategy, but the company is already seeing benefits from these investments, and I expect that to continue. But that's not the only reason I'm bullish. Besides investments in distressed assets, KKR is known for investing in good companies and making them even better. Some recent examples you've probably heard of include Dollar General, Toys R Us, and Del Monte Foods. It has made large investments in U.S. real estate as well. Like other distressed purchases, this was intended to be a longer-term strategy. But the U.S. housing market has been rebounding so strongly, the company is likely to see increased profits much earlier than originally expected. The company trades at a similar valuation to peers like Blackstone Group, Och-Ziff, and Janus Capital, but has a stronger balance sheet and less exposure to risky markets. It also pays a healthy 4%-plus annual dividend. But one of the biggest reasons I'm bullish on KKR has to do with the pension-fund industry. ----------Advertisement--------- "The End for Obama?"  Could Barack Obama's entire presidency be ruined by a single upcoming event? One of the most widely read journalists in America thinks so. And you can see his fascinating take on the subject – including when it's likely to occur and what it would mean for U.S. citizens… The full story is posted, free of charge, here. --------------------------------- Crux: What do pension funds have to do with a private-equity company?  Curzio: Pension-fund assets reached a new record high last year of $30 trillion. That's an incredible amount of money… and most of this money has traditionally been invested in mutual funds and hedge funds. But there's a problem. Over the past few years, these funds have dramatically underperformed benchmarks like the stock market. According to Goldman Sachs, 88% of actively managed mutual funds underperformed the S&P 500 in 2011. Last year, 65% underperformed. And hedge funds haven't done much better. This is leading to a huge shift at pension funds… pension managers are beginning to look to private-equity companies to boost returns. This is good news for private equity in general and great news for KKR. The company has a long history of beating its benchmark year after year. We're already seeing the benefits of this shift. Earlier this year, KKR was able to raise $6 billion practically overnight for a new Asian private-equity fund. So many pension funds and endowments wanted to participate, the fund was oversubscribed. This isn't surprising… KKR opened its first Asian private-equity fund in 2007, and it has consistently outperformed the market – but it shows pensions are already lining up to put cash into these funds, and the shift is only getting started.  With $30 trillion in pension fund assets chasing better returns, private-equity funds are set for huge investor inflows… And as one of the best in the business, KKR is likely to receive a huge share of this money. I expect this trend could easily push shares up by 100% or more from today's levels over the next few years… And we'll be paid a huge dividend – usually between 4% and 8%, depending on profits – to wait. Even better, we now have one of the world's most-respected analysts on our side. Just last month, James Grant, editor of Grant's Interest Rate Observer, recommended KKR as one of his top picks to his subscribers. For those who aren't familiar, Grant has been writing his letter for 30 years. He's considered one of the best value analysts in the world. Each year he holds a conference where some of the most successful investors on Wall Street – guys like Jim Chanos and David Einhorn – present. Grant agrees with us that KKR is one of the best private-equity companies in the world, and expects shares to head much higher as the company continues to bring in new money. He also thinks the company could pay a large, one-time dividend to shareholders, on top of the already large dividend yield. I was already extremely bullish on the company, but it never hurts to have one of the world's best agree with you. Crux: We can see why you're bullish… but shares of KKR have rallied significantly since you first recommended it. Would you be a buyer today, or would you recommend waiting for a pullback first?  Curzio: You're right… The stock has run up a bit in the past couple months. Shares are up about 35% since my original recommendation and up about 10% since Grant's recommendation last month. The stock is currently trading around $19. Based on my analysis, I think it's a great buy anytime you can get it for $17 or less. So you know, James Grant told his subscribers he believes it's a great buy at $18. Shares have pulled back from the highs over the past couple weeks, and I think there's a great chance patient investors will get an opportunity to buy at better prices soon, during the seasonally weak summer months in stocks. Crux: Sounds good. Any parting thoughts?  Curzio: Again, I think this company has tremendous upside, but I urge you to be patient and wait for the right price. I expect this is a stock you'll be able to buy and hold for years… and compound your wealth faster than in 95% of the dividend-paying stocks out there. Crux: Thanks so much for talking with us, Frank. Curzio: You're welcome.  Editor's Note: KKR isn't the only idea Frank is excited about today. He's also uncovered an income idea so powerful, it allowed a 92-year old grandmother to go from making just $17 a week to retiring a multimillionaire. Click here to learn how she did it… and how you could do it, too.