Buy Into These Underdogs With Just 'One Click' Today

The U.S.'s decade-plus reign could soon end... Folks are throwing in the towel on this batch of stocks... Dirt-cheap compared to U.S. stocks... Buy into these underdogs with just 'one click' today... Finding the 'best of the best' in this stock universe...

This is the kind of investment that can make or break your portfolio...

As longtime Digest readers know, the biggest gains often start from extremes in the market...

When something gets out of whack in the investing world, it tends to not just correct itself... but overcorrect. It's like a rubber band stretched so far that it eventually snaps back in the other direction.

We're seeing a situation just like that today... The scales are tipped heavily in favor of one group of stocks. It's so out of whack that we could see hundreds-of-percent gains starting right now.

In today's Digest, I (Chris Igou) will explain everything you need to know to capitalize on this situation in the coming years.

I'll show you why we have this tremendous opportunity today... I'll share a "one click" way to take advantage of it... And finally, I'll introduce you to an approach that can help you maximize your profits by finding the "best of the best" in this stock universe.

The story starts at home, with the benchmark S&P 500 Index here in the U.S...

You see, the S&P 500 has crushed one batch of stocks over the past decade.

Over that span, the S&P 500 was up 254%, while this specific group of its peers eked out a 38% gain. This is one of the largest gaps in performance between U.S. stocks and this group of stocks since the early 1990s.

No matter if it's one, three, or 10 years, U.S. stocks have outperformed almost every other major market in recent years...

That's especially true for emerging markets – the batch of stocks I'm referring to today.

And there is little appeal for foreign stocks after the U.S.'s decade-plus reign... Well, that's what most investors think, at least.

But here's the thing... This situation is out of whack. It's an extreme in the market. And with the rubber band now stretched to its max, we're likely to see a major snapback.

That's a light of hope for emerging markets.

And if you take advantage of this reversal, it could send your portfolio soaring for the next five years or more.

Now, because of this record-shattering outperformance by the U.S., it has set up a revenge opportunity.

The U.S.'s reign as an outperformer could be coming to an end in the near future. At least, that's what history shows...

Looking back to the 1990s, the U.S. and emerging markets trade off periods of outperformance...

Often, we see years of one group outperforming the other. And then, the opposite is true for the next several years.

When one market looks like it will be the winner for the inevitable future, the power starts to shift in the other direction. Take the early 1990s, for example...

From the end of 1990 through September 1994, emerging markets dominated the scene. These foreign stocks rallied more than 200% in less than five years. Meanwhile, the S&P 500 was barely up 50% over the same span. Check it out...

U.S. stocks didn't stand a chance in the early 1990s. But just when people thought the 1990s would be the decade of foreign stocks, U.S. stocks hit back...

From the end of 1995 through 1999, the S&P 500 was up 155%. Over the same period, emerging markets put up a measly 15% gain.

The world markets balanced themselves back out. Another great example of this phenomenon played out in the 2000s...

From late 2002 through 2007, emerging markets obliterated the S&P 500. This class of stocks as a whole took off for a five-year run. The end result was a 477% gain over that period.

U.S. stocks had a good run as well during that stretch... The S&P 500 was up 108%. But that return was no match for the kind of gains that were happening overseas.

Don't worry, though. The U.S. jumped back on top shortly after that...

U.S. stocks stole the crown back from emerging markets in the 2010s. And as I explained from the outset of today's Digest, it's been all about the U.S. for more than a decade.

This rare extreme can't last forever. And it's likely to change starting now. That's because after a decade of poor performance, folks have given up on emerging market stocks altogether.

If you want to consistently make big gains in stocks, you must know what the herd is doing with its money...

It's an easy way to keep your finger on the pulse of the market. And it helps you spot turning points in real time.

The 30,000-foot view of what investors love or hate can tell you when a hot trend is likely to run out of steam... or when one is about to start.

This is one of the best ways to find opportunities that others are missing. That's because the biggest rallies start when nobody wants to buy.

Take U.S. stocks in the 2008 bust, for example. The S&P 500 was down 55% from its October 2007 peak through early March 2009.

Nobody wanted to buy stocks after that kind of beating. We were still in the depths of the worst financial crisis of our lifetimes. And the U.S. economy was in the toilet.

Yet, if you bought shares of the S&P 500 back then, when almost nobody else could stomach such a move, you were buying at one of the best times in history... The S&P 500 rallied nearly 500% from its 2009 bottom through the end of 2019.

Today, we're again seeing crisis-level bearishness. Only this time, it's not at home in the U.S...

Investors are the most bearish they've been on emerging markets since 2008...

As the COVID-19 pandemic started wreaking havoc earlier this year, foreign stocks fell off a cliff. The broad emerging market index plunged 34% from peak to trough.

This beating was enough to leave a scar on emerging market investors. We can see this negative sentiment through shares outstanding for the iShares MSCI Emerging Markets Fund (EEM).

For those who aren't familiar, EEM is an exchange-traded fund that can create and liquidate shares based on investor demand. If demand is rising, EEM can increase the share count. And if folks want nothing to do with emerging markets, EEM cuts shares to match demand.

That's what we've seen in recent months. Shares outstanding for EEM are down 22% since January. Check it out...

The recent drop drove demand to a decade-plus low. It paints a clear picture of how scared investors are right now. They want nothing to do with foreign stocks.

Importantly, in the past, similar bearish cases have led to incredible gains in emerging markets...

We've seen demand for this group of stocks hit multiyear lows a handful of times since 2010. The most obvious examples came in 2011, 2014, and early 2016.

And each of these events led to quick double-digit rallies in emerging markets...

In September 2011, EEM was down 21% from its April 2011 peak. The long decline pushed traders to the exits. Demand for emerging markets vanished.

But if you were a contrarian investor back then, it was a great buying opportunity... EEM jumped 26% from late September 2011 into March 2012. That's a big gain in roughly six months.

Investors often learn things the hard way... They make the same mistakes over and over again until they eventually get it right – if they ever get it right.

You see, just two years later, folks were scared out of foreign stocks again in April 2014. Emerging markets as a whole were down 15% from their 2013 peak into early 2014.

Investors couldn't take the pain anymore. So they got out of these stocks altogether. As it turns out, that was a terrible time to sell... In fact, EEM rallied 13% into early September 2014. That's another solid gain in less than six months.

Our last example led to a much bigger buying opportunity...

In early 2016, investors again wanted nothing to do with emerging market stocks. By February, these stocks were down more than 30%. This led to a multiyear low in demand for shares of EEM.

You should know where I'm going with this by now... Emerging market stocks took off after bottoming in February 2016. They surged an incredible 80%-plus to their eventual peak in January 2018.

That's just a taste of what's possible when investors leave a market for dead. And even better, it's not the only positive we're seeing from emerging markets today...

You can buy foreign stocks at a steep discount to their U.S. peers right now...

With U.S. stocks at new highs, we've also seen valuations skyrocket in recent months.

The S&P 500 now trades at a price-to-book (P/B) ratio of 3.7. That's one of the highest valuations in U.S. stocks since 2001.

We can see a similar trend play out when we look at the price-to-sales (P/S) ratio. This ratio gauges how much you are paying for the amount of sales revenue a company brings in.

Importantly, it's showing a similar trend in valuations for the U.S... The broad market is getting darn expensive based on these rough gauges. The P/S ratio for U.S. stocks is at 2.4.

Now, when it comes to valuations, paying less for the same amount of assets is better. That means you generally want to see a lower P/B or P/S ratio when you're looking to buy a stock.

There's no question right now that emerging market stocks offer a better deal based on these two measures. Take a look at the table below...

Again, we're using the iShares MSCI Emerging Markets Fund to see this valuation gap. EEM trades for a P/B ratio of 1.8 as I write. That's roughly a 50% discount to stocks in the U.S.

The same is true when we look at the P/S ratio. EEM is a much better deal, with a P/S ratio of 1.5. That's a 38% discount to the S&P 500.

These kinds of deep discounts are hard to ignore. It's another reason why emerging markets will likely crush U.S. stocks in the coming years. This situation is out of whack. And as the rubber band stretches to an extreme, it will inevitably snap back and fly in the other direction.

Now, I want to be clear... this doesn't mean U.S. stocks have to do poorly. We could still see a big rally at home in the coming years. It's just that the upside potential is likely even bigger in emerging markets.

To sum everything up, this batch of foreign stocks is overdue for its time in the spotlight. It's been in the shadows of U.S. stocks over the past decade. But that's likely changing now...

With today's dirt-cheap valuations and investors giving up on this part of the world, emerging markets are a no-brainer opportunity for folks today.

They could be on the verge of a massive rally... It's one that will likely outperform U.S. stocks in the coming years. You don't want to miss out on this potential once-in-a-decade opportunity.

And there's a very basic, "one click" way for you to capitalize on this idea... You can simply buy shares of the iShares MSCI Emerging Markets Fund (EEM) to take advantage of it.

This fund simply holds a basket of more than 1,200 emerging market stocks. That means by owning EEM, you would be matching the broad move in these foreign stocks.

But if you want more upside potential than what a basic broad market exchange-traded fund can give you, there's a better way to find the "best of the best" in emerging markets...

My colleague Brian Tycangco recently pinpointed his favorite emerging market stocks to own right now...

Brian is perfectly situated to show you what opportunities lie ahead. He lives and works in the Philippines, and his entire life has prepared him for what's about to play out in emerging markets.

Brian believes the highest-quality emerging market stocks have a shot to soar hundreds of percent in a very short window. And if a true bull run in emerging markets is starting now – like what I've shown you is likely in today's Digest – his three handpicked selections could outperform the rest of the pack... leading to the kinds of gains that could help you retire early.

Even better, Brian wants to share these stocks with as many folks as possible today...

He's so excited about detailing these opportunities – which he's calling the "Next Chinas" – with you that he rushed to put together a brand-new presentation with all the specifics. This trend could lead to quadruple-digit gains over the long haul. Get started right here.

And if you're already a True Wealth Opportunities: China subscriber or an Alliance Partner, you can access our special report on these Next China opportunities right here.

New 52-week highs (as of 9/21/20): none.

In today's mailbag, we received feedback on our pre-election thoughts and note about vitamin D in yesterday's Digest, as well as a comment on Dan Ferris' latest Friday Digest. What's on your mind? As always, e-mail us at feedback@stansberryresearch.com.

"With regard to your brief comment on vitamin D today: A study a few months ago at Los Alamos actually pointed out this relationship. Since the effect on the lungs is a secondary effect, not the primary one (which btw is on the lining of blood vessels), having enough vitamin D in the blood to short circuit the attack can head off the entire thing.

"They didn't point out that this could explain the big problem covid is causing in the [African-American] community, since roughly 80% of [African-American adults] are deficient in vitamin D. The corresponding fraction for the general population is half that.

"It is important to note, though, that it's hard to move the needle on vitamin D. Taking even a pretty major supplement dose could take one or two YEARS to push your level up, since it is fat soluble. Most of what you take in will be absorbed into fat cells. That doesn't mean you shouldn't try, but don't expect quick results." – Paid-up subscriber Ken L.

"Is there a vaccine available to protect us from the next 5+ weeks prior to the election? I think we need some protection..." – Paid-up subscriber Joseph D.

Corey McLaughlin comment: Maybe the Neuralyzer – the memory-eraser stick – from the 1997 movie Men in Black starring Will Smith and Tommy Lee Jones?

"Dan, Great newsletter! Thanks for the life lessons as well as the investing perspective. There is a lot of hype and chaos in the financial news nowadays. Thanks for the solid guidance." – Paid-up subscriber Portia C.

"To Dan Ferris, I am very sorry for your loss. I like this quote from Martín Prechtel's book, The Smell of Rain on Dust: 'Grief is praise, because it is the natural way love honors what it misses.'" – Paid-up subscriber Doug D.

"I just read Dan Ferris's column from Friday. Wonderful insight. My conclusion? We need more music majors in our financial commentary world. Thanks." – Paid-up subscriber Eric A.

Good investing,

Chris Igou
Jacksonville, Florida
September 22, 2020