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HIGH INCOME STOCKS

FOR A BEAR MARKET

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I have here three stocks that very few people like right now. I hope to convince you to be one of the few. Hi, my name is Jack Adamo. Last year my newsletter, Jack Adamo's Insiders Plus had a 48% return versus 3.5% for the

S&P 500. In the last five years our Model Portfolio delivered compound annual returns of 18.9%. We've beaten the market six of the seven years we've published. Our risk-adjusted return in that period has beaten the Wilshire 5000 by nearly fourfold. And we've never had a losing year. Not even during the debacle of 2001 - 2002. You don't have to take my word for this. Those statistics are from Hulbert's Financial Digest, an independent service that tracks the performance of over 200 investment newsletters. Insiders Plus gets a lot of leads from corporate insiders, and what we call "smart money." They're brilliant investors with spectacular long-term track records, like Warren Buffett, Jim Rogers and Sam Zell. But a lot of what we do is just plain old common sense and good in-depth analysis. When you can act rationally and see the true value of investments while the crowd is reacting emotionally and without insight, naturally you're going to make much greater returns. Here I have for you three stocks that pay high dividends. Regardless of whether we're in a bear market or not, each of these companies will send you a check every quarter. You don't have to worry about what the market is doing week to week. Two of these stocks have also recently had what the average investor thought was a problem. That makes their prices lower, and their current yields higher. Our analysis shows that most of the problems are in people's minds. The actual facts are far more positive. In fact, we believe these stocks will trounce the market over the next five years, and they'll start doing it soon. Read on, and see if you don't agree.

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SAIL TO A LOW RISK 7% YIELD

Seaspan Corporation (NYSE: SSW) could be a poster child for what we do at Jack Adamo's Insiders Plus. The company is a lessor of container ships. Twelve percent of its stock is owned by insiders. That's a huge amount. Most of the companies in the S&P 500 are less than one-half of one percent insider owned. Seaspan's CEO and founder, Gerry Wang, is well-connected and very familiar with the Asian markets. He has a smart, conservative philosophy for running his company. He only buys a ship if he has at least a five-year lease agreement already in place. Some of the leases are up to 12 years. This may limit the company's upside earnings potential if the spot market for shipping gets tighter, but it also protects it in downturns. It grows its profits by leasing more ships, not by taking chances on higher shipping rates that may not materialize. The company currently has 29 vessels in the water and another 34 on order. All are on contract. Its fleet utilization rate is 99%. Seaspan has no risk from fuel prices or labor contracts. The shipper pays all crew and fuel costs.

HATES RISK
You might say Wang has a healthy aversion to risk. If you've seen what's happening on Wall Street lately, you know that a large part of the credit crunch stems from no one being sure if the party on the other side of a transaction will be solvent enough to hold up its end of the deal. Seaspan was very attuned to counter-party risk long before Wall Street got religion about it. The company only leases vessels to the 15 largest shipping firms. Nonetheless, the crowd did what crowds do. The stock is down nearly 35% from its high, based on irrational fears and a lack of understanding of accounting and finance. Here are the facts: The whole shipping industry has taken a beating in the stock market due to recession fears. But a recessionwhich I think is a done deal at this pointshould have little or no effect on Seaspan. It has no exposure to short-term supply and demand, or spot pricing. With its entire fleet under long-term lease, it would take more than a recession to cut

(SSW)

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into its profits. A worldwide depression is more like it. Bankruptcies in some of the strongest companies in the industry would have to be filed for these contracts to be broken. Is it possible? Sure, it is. And we might also get hit by an asteroid. But you don't invest based on remote possibilities; you invest based on rational probabilities. That's how you average 18% returns year after year.

ACCOUNTING ILLITERACY
The stock also took a hit recently when it reported a big quarterly loss on mark-to-market decreases in the value of its interest rate swaps. You should have seen the panicked articles on some of the popular investment websites. Absolutely idiotic. The "loss" represents the change in value of the company's long-term interest-rate hedges. Since interest rates are lower now, these swaps have less market value. Hence, the markdown. But the swaps exist solely to stabilize Seaspan's interest expense on its fleet, making earnings more predictable. Cash flow is not affected in the least. They're already paid for, and there's no intention of selling them. Whether they go up or down, the company is going to make the same profit it budgeted. That's the whole point of hedging. Excluding the swaps write-down, EPS increased 17% for the year. For a stock yielding 7%, that's an implied total return of 24%. Over time, that should work its way to the bottom line. The company recently raised the dividend for the third time in two-and-a-half years; so, you may even do better than that.

MORE IGNORANCE
The latest bit of "bad" news that put these shares in the bargain bin is that the company raised capital. It took out a relatively small loan to take advantage of lower interest rates and pay off higher interest loans, adding profits to the bottom line. It also did a secondary stock offering that increased share count by 15%. The latter is something that often is not good news. It threatens dilution of shareholders' earnings. But, again, this is an instance where you have to look at the individual situation.It has been Seaspan's stated policy to pay out a high portion of its earnings in dividends. As a shareholder, I like this. I know I'm getting paid every quarter, regardless of what the market is doing. The flip side of this, however, is that company expansion usually has to be done with new capital, rather than reinvested earnings. But Seaspan only buys ships when it has leasing contracts in placepresumably profitable ones, as past dividend increases indicate. Given this fact, it is safe to assume that if there is any earnings dilution, it will be modest and temporary. Those in the know seem to think so. Insiders bought $18 million worth of Seaspan in the recent stock offering. And remember: the company was already 12% insider owned. If you're looking to get rich quick, this stock isn't for you. But with a current yield of 7% and long-term growth potential conservatively estimated in the 8% to 10% range, this is a stock that fits well in the portfolio of any smart investor who's satisfied to get rich at a steady pace and with minimal risk. I'm very comfortable in my belief that in the next five years Seaspan will deliver total returns near our five-year average of 18%. Buy Seaspan up to $28.

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SMART MONEY BUY: BANK WITH BUFFETT

U.S. Bancorp (NYSE: USB) is a great balance between solid current income and above-average long-term growth potential. The stock currently yields 5.6%. In the 20 years the company has been public its dividend has more than quadrupled. Share price growth has been strong too. The, stock has risen 80% in the last five years alone. With very few exceptions, that has outpaced all the so-called hot, high-tech darlings Wall Street fawns over. Like most banks, USB is struggling lately. That can be expected to continue through the end of the year. But despite lower EPS, second quarter return on equity was 17.9%. That would be very good in the best of circumstances. In the current environment, it's outstanding. The market is finally noticing. The shares have risen nicely since the announcement. The solid performance in the current environment is a testament to the company's savvy managers. USB steered clear of the toxic problems that choked most banks. Only 2.7% of its loans are subprime. The company is now benefiting from the suffering of others in its industry. Since few banks are in a position to make new loans, more new business comes to the select few which are. Its balance sheet may be the strongest in the industry. Earlier in the month, S&P downgraded the entire diversified banks and financial services industry to a negative credit watch, yet USB is the only bank to which its equity analysts currently give a "Buy" rating. USB is one of our "Smart Money" buys. Warren Buffett's Berkshire-Hathaway has been a big buyer of the stock. Recent SEC filings show that in the first quarter, Berkshire bought a millions shares of the Minneapolis-based bank, for a total of 68 millionup tremendously from its stake of 23 million shares just a few years ago. The Wizard of Omaha knows what he likes and why. We like it too. And though the remainder of 2008 may see some ups and downs, the stock will keep paying its 5.6% dividend until things pick up next year, and the long-term growth kicks in to provide a nice total return. We think that should be from 12% to 15% for years to come. U.S. Bancorp is a buy up to $35.

(USB)

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HIGH YIELD IN NATURAL GAS

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) is a pipeline company. It stores and transports natural gas, oil and petroleum products, and CO2. It's a very steady business, and has a good degree of insulation from short-term price swings in the commodities it moves. Still, over time, as energy prices rise, the rates that pipeline companies charge tend to rise too. In this case, so does the stock price. For the last 10 years KMP has delivered a total return of nearly 20.8% compounded annually. The company first caught my attention last summer when Insiders bought more than 54,000 shares (actually, they're called units with these LPs) despite their being near an all time high. The big boys knew what they were doing. In the last year, KMP has delivered a total return of 15.4%, while the S&P 500 and Dow have dropped 15%. That's a 30% spread in performance, relative to the market. To be strictly accurate, the Insiders didn't buy these units, but rather their sister units, Kinder Morgan Management, which pay their dividends in additional units, rather than in cash. Nearly 13% of these units outstanding are held by Insiders. But if you're like me, you'd rather take your money up front, especially in this kind of market. Despite the run-up in price since last year, the units actually now have a higher current yield a whopping 6.7%. That's because the company has raised the dividend in each of the last 4 quarters. What's more, that's not at all unusual. KMP has raised its dividend in 3 or 4 quarters of most of the last 10 years, and raised it at least once per year in all of them. The case for energy investments remains strong. While $125 oil will slow (not stop) worldwide demand growth, the use of natural gas as a substitute is growing. Even with the recent rise in prices, it is still far cheaper than oil for industrial uses, such as utilities, and it's cleaner. Moreover, it's significantly cheaper here than abroad, which should continue to increase its importance as America strives for energy independence. In the quarter ended June 30, earnings per unit increased 81%. In addition to all these factors, KMP has been steadily expanding its geographic reach. Soon it will be able to efficiently and

(KMP)

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economically deliver gas from the booming Rocky Mountains fields, all the way to the energy-hungry Northeastits biggest market. Part of the extension was completed in January, boosting earnings, as expected. The rest of it should be finished by this time next year, delivering more gas to the Northeast, and more cash to unit holders. As a tax-advantaged limited partnership, KMP is not taxed at the corporate level. Your share of the profits is considered your personal income.You can buy it in tax-deferred accounts.You may want to consult your tax advisor for the best way for you to exploit this arrangement. Buy Kinder Morgan Energy Partners up to $60.

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