Profiting From Government’s Attacks on Business
There’s an old saying: “That which doesn’t kill you makes you stronger.” That certainly makes sense when it comes to tobacco stocks. The government and trial lawyers have made billions fighting Big Tobacco in the courts, and yet every time a big lawsuit is filed, an incredible bargain opportunity arises for investors.
The pattern is well established. Stocks like Altria Group Inc(NYSE:MO), Philip Morris International Inc.(NYSE:PM), British American Tobacco PLC (ADR)(NYSEMKT:BTI), Reynolds American, Inc.(NYSE:RAI), and Lorillard Inc.(NYSE:LO) dip temporarily only to move higher and higher (they’ve all doubled and tripled in the past five years) after the lawsuit is announced… and even after the government and the trial lawyers win.
A longtime friend who manages his own investments told me that he’s made a lot of money over the years buying right after the government wins a big lawsuit against the cigarette companies.
I had a similar experience earlier this month.
Last year the SEC went after Prospect Capital Corp. for alleged accounting irregularities. After the SEC filed an investigation, a slew of predatory law firms (mainly out of Chicago) filed suits against the company. The stock fell 20% even as it continued to do a prosperous business and paid out a regular $0.11 monthly dividend.
With the investment company selling at a discount to its net asset value, priced at less than 10 times earnings, and yielding a mouth-watering 13%, I couldn’t resist buying it and recommending it in my “High Income” trading service.
Sure enough, on June 10 Prospect Capital announced it had settled with the SEC,