Trump issues his strongest warning yet

From Justin Brill, Editor, Stansberry Digest:

The war of words between President Donald Trump and North Korea’s Kim Jong Un escalated again on Wednesday…

During his 30-minute speech to South Korea’s National Assembly yesterday, the president issued his clearest warning yet to the North Korean dictator. From the speech (emphasis added)…

Today, I hope I speak not only for our countries, but for all civilized nations, when I say to the North: Do not underestimate us, and do not try us. We will defend our common security, our shared prosperity, and our sacred liberty…

I also have come here to this peninsula to deliver a message directly to the leader of the North Korean dictatorship: The weapons you are acquiring are not making you saferThey are putting your regime in grave dangerEvery step you take down this dark path increases the peril you face.

North Korea is not the paradise your grandfather envisionedIt is a hell that no person deserves. Yet, despite every crime you have committed against God and man, you are ready to offer, and we will do that – we will offer a path to a much better future. It begins with an end to the aggression of your regime, a stop to your development of ballistic missiles, and complete, verifiable, and total denuclearization.

And as has often been the case of late, North Korea promptly fired back. From the statement issued by North Korea’s state-run newspaper a few hours later…

The world is undergoing unprecedented throes because of Trump, a notorious political heretic…

The U.S. must oust the lunatic old man from power and withdraw the hostile policy towards [North Korea] at once in order to get rid of the abyss of doom.

The U.S. had better make a decisive choice… if it does not want a horrible nuclear disaster and tragic doom.

What comes next is anyone’s guess…

We certainly hope the world can avoid another major conflict. But it sure looks to us like the U.S. is inching closer to war.

Regardless, there’s no denying rising tensions have been a boon for defense stocks…

The threat of war – along with the potential for a dramatic increase in military spending over the next several years – has sent shares soaring this year.

The S&P Aerospace & Defense Select Industry Index is up nearly 30% year to date, compared with a rise of less than 15% for the broad S&P 500 Index.

And Dr. David “Doc” Eifrig’s Retirement Millionaire subscribers are benefiting. All three of Doc’s favorite defense stocks are up double digits over the past several months. But these stocks aren’t trading on sentiment alone…

Take Retirement Millionaire recommendation Huntington Ingalls (HII), for instance. The shipbuilder just reported stellar third-quarter results yesterday.

Revenues grew 10.7% to $1.86 billion, compared with analyst expectations of just $1.8 billion. Earnings surged 44.1% to $3.27 per share, versus expectations of just $2.79 per share. And the company reported sales growth was strong across all divisions of its business.

Huntington also reported $3 billion of new orders during the quarter, bringing its total order backlog to $23 billion… suggesting this trend will continue.

Best of all, the company reaffirmed its commitment to return more cash to shareholders. It declared a 20% increase to its quarterly dividend to $0.72 per share. And it announced it was nearly doubling its share buyback program to $2.2 billion over the next five years.

Doc’s Retirement Millionaire subscribers are now up more than 30% in less than 10 months. But Doc believes the biggest gains are likely still ahead. As he reminded Retirement Millionaire subscribers in a recent issue…

The billions in extra spending haven’t had time to hit the income statements of these companies for the most part. But global tensions are higher than ever before, and Trump has backed up his claims of military spending so far.

In July, the House of Representatives approved a 2018 budget that raised defense spending from $542 billion to $696 billion… That’s even more than Trump requested. The budget got a “yes” vote from 117 Democrats.

This defense boom will last for years.

Elsewhere in the market, the news isn’t so good for one of Porter’s favorite whipping boys…

Wireless carrier – and Stansberry’s Investment Advisory short recommendation – Sprint (S) just lost a promising deal with industry competitor T-Mobile (TMUS).

For the past several months, the third- and fourth-largest companies in the industry had been in merger talks. A joint entity would have boasted more than 130 million U.S. subscribers, making it the third-largest carrier behind Verizon (VZ) and AT&T (T).

But over the weekend, these plans fell through. In a joint statement, the companies said they were “unable to find mutually agreeable terms.” Essentially, SoftBank (Sprint’s parent company) and Deutsche Telekom (T-Mobile’s parent company) didn’t support the idea.

Of course, this news should come as no surprise to Stansberry’s Investment Advisory subscribers…

In the May issue, Porter and his team of analysts explained why they were skeptical the deal would go through. As they wrote…

A merger with Sprint, it is argued, would allow T-Mobile to compete with larger rivals Verizon and AT&T. A merger is likely the only way to save Sprint from bankruptcy. But T-Mobile’s big spectrum haul makes this less likely.

Sprint’s licenses are predominantly in the 2.5 gigahertz (GHz) range, which is high-band spectrum. And in total, Sprint owns more spectrum than any other cellphone carrier. But the FCC doesn’t want too much spectrum held in the hands of too few companies. So with T-Mobile adding a significant amount of spectrum to its portfolio, regulators now have more reason to block a merger between Sprint and T-Mobile.

Nonetheless, until this week’s sudden decline, Sprint’s stock price had rallied as merger negotiations between carriers can now resume. (Bidders were blocked from pursuing deals during the auction process.) There’s even talk that Sprint could come together with a cable company.

Keep in mind, Sprint’s main problem is its colossal $41 billion pile of debt. Many cable companies are highly leveraged as well. And even if they weren’t, why would any company want to assume all of Sprint’s liabilities? They wouldn’t. Sprint’s interest expense is now $2.5 billion per year… and rising.

We don’t see a viable suitor for Sprint, whether it be another wireless carrier or a cable company. Between its debt burden and the raging carrier price wars, Sprint is doomed.

Porter and his analysts first recommended shorting the stock back in February…

As they explained to Stansberry’s Investment Advisory subscribers at that time, the company was a profitless and broken business…

A day may come when Sprint’s high-band frequencies become more valuable. Advances in network and signal-transmission technology could make that possible.

But time is not on Sprint’s side…

Sprint will likely have to reorganize long before that happens. Sprint has to deal with a huge pile of debt, which was taken on by building out its network and buying companies. And now, Sprint’s spectrum licenses are becoming inextricably linked with this massive and growing debt load.

Shareholders should value Sprint – including its spectrum assets – based on future cash returns… But it’s not generating any cash… and isn’t likely to anytime soon. Sprint’s future looks bleak. It lacks a competitive advantage in a very crowded industry…

Worse, in a clumsy effort to steal customers away from its rivals, Sprint had created a price war in an industry that was already highly competitive. More from that issue…

The incentives and heavy discounting drove down revenue and margins. Sprint’s revenues have fallen over the last two years from around $35 billion to $33 billion. Its rivals suffered, too. AT&T’s wireless revenues fell for the first time from around $74 billion to $73 billon. Market leader Verizon’s wireless revenues fell 3% to $89 billion. Only T-Mobile managed to grow revenue.

But Sprint was the least prepared to fight the price war it started. And it’s the clear “loser”…

Of the big four U.S. carriers, Sprint is in the worst financial shape. Its operating margins and cash flows were already much worse than its competitors before the price wars began.

Worst of all, the company has a huge wall of debt coming due within the next five years…

Sprint’s debts have nearly doubled since 2010 as it has struggled to keep up with the rest of the wireless industry…

Almost $10 billion, or 30%, of Sprint’s total debt matures in the next three years. And $17 billion – more than half of its debt – matures in the next five years…

Sprint has $2.8 billion worth of debt coming due this year. It has $6.1 billion in cash and $3 billion of available credit. It can pay off its debt maturing in 2017 without a problem… But it has another $6.8 billion worth of debt coming due in 2018 and 2019. That’s a daunting wall of maturities for an already highly leveraged company that doesn’t generate any free cash.

With the lowest margins in the industry… no profits over the last decade… the most debt (and the most debt coming due) of any major wireless carrier… the lowest-rated network and the most capital expenditures to maintain… and negative cash flows… it’s easy to see why Porter recommended selling the stock short nine months ago.

Stansberry’s Investment Advisory subscribers are up nearly 30% on the position. And with the potential merger with T-Mobile now off the table, shares are likely headed even lower still.

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