We're starting our Digest today with a word from Frank Curzio, Stansberry & Associates' newest editor. Frank recently took over Phase 1, our most exclusive service, focusing on emerging technologies. While researching companies, Frank discovered an opportunity surrounding a massive shortage in the world's greatest growth story... China.
Frank sent us this note today: Right now, the Chinese have a serious problem. And I've found a tiny Chinese company addressing it. After several months of research, I can tell you it's one of the best stock opportunities you'll see this year.
In short, China is literally running out of food.
Strange, I know... that such a large country (in terms of land mass) could be running out of food. But thanks to poor farming techniques, deforestation, droughts, and pollution, China's arable land (the land where it can grow crops) has shrunk by 6.4% since 1996... and by some estimates it will continue to shrink by 3% a year.
What does that mean, exactly? China's own experts predict by 2020, they could lose 16.5 million acres of additional farmland.
That's a lot of land, even by Chinese standards. It represents an area larger than West Virginia, Hawaii, Maryland, Massachusetts, Vermont, New Hampshire, New Jersey, Connecticut, Delaware, Rhode Island, and Washington D.C... combined.
Obviously, this is a major problem for a country with 1.3 billion people. But here's the incredible part...
The Chinese government is turning its immediate attention to this problem. And it's going to rely on a tiny Chinese company, which has invented and patented a technology that could dramatically improve China's food problem... and potentially make early shareholders a lot of money in the process.
I can't share exactly what this technology does... That information is for my Phase 1 subscribers. I can tell you, this new technology could allow farmers to make more money on their crops and livestock. The company has made a bold proposition to farmers: a 1,000% return for every investment made in this new technology. According to one case study, one farmer saw a 5,519% return on his money. At that rate, he could collect $55,190 for every thousand invested.
And this isn't some speculative, unproven company. It's already experienced spectacular growth. From 2006-2009, this tiny company increased its sales revenue by 2,551%, while at the same time increasing its net profit by 6,450%.
To put it another way: This company isn't just getting bigger, it's also becoming much more profitable in the process. And the company now has the infrastructure to push its products throughout China. It operates stores all around northern China, where farmers can walk in and buy this new technology. As of April 2010, these guys had opened more than 9,100 stores throughout China to sell their technology.
This company is going to help do for Chinese agriculture what the St. Louis-based agri-tech business Monsanto has done for U.S. agriculture in recent years. Monsanto has perfected certain technologies that make farming much more productive and efficient. As a result, the stock is up about 800% since 2003. But we expect readers can still make at least three times their money on this Chinese agriculture stock.
If you'd like to access the full details of Frank's research, we just published a Phase 1 Investor report containing everything you need to know about this opportunity. For more information, click here.
The world was ecstatic with the European bailout yesterday: Global markets soared. The euro soared. European bank stocks all jumped double digits...
Today, however, the euro has surrendered its gains from yesterday, and European markets are down across the board. The market now believes the $1 trillion bailout won't be enough. But don't give up on a European recovery yet... $1 trillion is a lot of cash. And we doubt this will be the last trillion dollars the EU and IMF print. Once the market has time to digest the money – and it's reflected in corporate earnings – stocks will rise again.
If you look back to September 2008, when the U.S. government first proposed its $700 billion bailout, the market immediately dropped. The S&P 500 fell from around 1,200 to 676 at the bottom in March 2009 – a 44% decline. Then, the government started more "quantitative easing." By April 2010, the S&P 500 fully recovered – around a 70% gain. If you look at the chart below, you'll see one asset, gold, rose the entire time. In the current, loose-money society, gold is one of the safest assets you can own.
So far, it's looking like you should have bought last week's dip. The S&P 500 is up nearly 10% from Thursday's panicky low. Overall, the market is trading at more than 23 times earnings and more than two times book value, and yields less than 2%. If a friend came to you with a business proposition at those valuations, you might take him up on it... but only if you thought you had the next Microsoft on your hands.
Everyone is crowing about the "flaws" in our financial markets. One man said of Thursday's rout, "It did point out that there is a structural flaw. We have to think through how you preserve the immediacy and yet preserve the liquidity."
Even without naming who said that or whom he works for, it's easy to tell he's part of the Wall Street establishment. They want it all, they want it now, and they're not afraid to cajole Congress, the Fed, and the Treasury into giving it to them. (The quoted individual is Gus Sauter, chief investment officer of Vanguard, the big mutual-fund group.) He should have been more honest and said, "The market owes us something, and we plan to use every ounce of our massive clout to get it."
I don't get it. When billions worth of sell orders are entered all at once, isn't the market supposed to crash? Did the market make a mistake on Thursday? Or did it simply show the whole world how markets work? We're led to believe trading programs, called "bots," caused the market to crash. But people wrote those programs, people who wanted to sell into a falling market. That's human nature, not bots.
Don't forget, the market crashed in 1929 without bots. Bots aren't the problem. Human nature is the problem. And there's only one way to deal with that. Become a value investor, or at least a contrarian. Otherwise, you'll always be a victim on days like Thursday. I know people who had "stink bids" in on Thursday. Their bids were hit, and they're now holding great stocks at a profit. They're not complaining about bots. If the market rose 8% on Thursday afternoon, I promise you, no one would have complained.
Those lucky U.K. residents... Their government is "still in limbo," according to a Wall Street Journal headline this morning. Maybe they'll continue to get lucky, and it'll remain in limbo permanently. Then, their struggling economy might have a chance.
News stories about the failed U.K. election (like this one) suggest it's bad for financial markets if there's no "strong" government. The idea is that, without some kind of government intervention, the U.K.'s worst financial crisis in decades will devastate its already damaged economy.
It occurred to me this morning how many investors today are merely speculating on the success of the Fed's ability to get results by printing money. With both Goldman Sachs and JPMorganChase making trading profits every single day in the first quarter, I understand why investors believe in the government's power to "fix" things. But it isn't fixing anything for you and me. It's going to tax us into penury to fund its social agenda. And it's going to print more money than it's ever printed. Oh, wait, that's already happened...
I have to wonder (and worry) about the majority of publicly traded common stocks... They're so expensive. Without more liquidity provided by the Fed, is there such a thing as investment in most common stocks these days? Aren't they all just speculations on the government's ability to fix things by printing money?
I'm not saying such speculation can't succeed or even that it's a bad idea. I just think it's beneficial to know what's going on and say it out loud. You don't want to fool yourself when it comes to investing. And if you think lending money to a bankrupt government for 30 years at a little more than 4% interest is normal economic behavior, there's a good chance you're fooling yourself.
There's one type of investment you never have to wonder or worry about: World Dominator stocks. When you get them at the right price, they're the only sure thing in the stock market.
World Dominator stocks are big, safe blue-chip businesses that dominate their markets. They have vast financial resources their competitors don't have. They have pricing power their competitors can't imitate.
For example, who do you think gets the lowest prices from its suppliers? Wal-Mart or The Kroger Co grocery chain? That kind of advantage is why Wal-Mart has been one of the greatest income investments in history, gushing cash rewards to shareholders by raising its dividend every year since it went public.
In a few days, I'll tell Extreme Value readers all about my brand new World Dominator stock. It's the No. 1 company in the world that produces a commodity whose value has been recognized for more than 5,000 years. Investors all over the world are more interested in this commodity than ever before, and will likely become more interested as they realize how well it does during bad times. You can buy this commodity through ETFs, but they're not the best way to get exposure to this shiny, golden stuff. This unusual company dominates the market for this commodity in 25 of the top 31 major marketplaces worldwide. Its profit margins are rising. The global market in this golden commodity actually contracted 2% by one measure, but this company grew cash flows 16.6%. This company is No. 1, any way you measure it.
In this type of a market, your best bet is to focus the core of your stock portfolio on World Dominators. I don't know anyone else covering these stocks. I've been covering them for four years. I can tell you better than anyone, they're the most consistently profitable businesses you'll read about anywhere.
Most investors don't understand why World Dominators are worth 20, 25, or even 30 times earnings. But Extreme Value readers know this cold. They've heard my simple explanation more than once. It'll be in the next issue, too.
Most people think you can't make big money on big blue-chip stocks. My readers have made 53% in seven months, 48% in 17 months, and 53% in 13 months, while owning the safest stocks in the market during the worst financial crisis in history. One of my World Dominator picks was among a handful of stocks that actually rose in 2008.
My new World Dominator is trading for about half what it's worth, and it'll easily grow earnings and cash flows. I think it'll double within three years.
To get access to Extreme Value, and my new "golden commodity" World Dominator pick, click here.
Speaking of golden commodities that have been around for more than 5,000 years... Gold hit $1,225.60 today, just shy of its all-time high of $1,226.10, reached back in December 2009.
Could the junk rally be over? The Russell 2000 small-cap index has underperformed the S&P 500 since Thursday. For over a year now, buying small-cap junk has been the way to make big money. Last week's rout suggests that trade is losing steam.
Investors who've been around awhile are still buying high-quality big-cap stocks. GMO's Jeremy Grantham released his latest shareholder letter recently. Grantham writes that "the large high-quality companies are still a little cheap" and are a great way to get exposure to emerging markets. Grantham predicts investors will "fall in love with all things emerging" in the next few years. He also thinks the big high-quality stocks won't do well if a new equity bubble continues to inflate, but "in the end [they] should win."
What's easier to do? Speculate on the inflating equity bubble and get out before it pops? Or stop speculating, invest in World Dominators, and know you'll be right sooner or later... that you're unlikely to get hurt no matter what happens? Sounds like an easy decision to me, though most investors will make the wrong one and throw away their chips on bad bets.
New highs: Altria (MO), DirecTV (DTV), AuEx Ventures (XAU.TO), Eldorado Gold (EGO), Inter-Citic Minerals (ICI.TO).
In the mailbag... several readers had a wild ride last Thursday. Tell us how you fared at feedback@stansberryresearch.com.
"When I saw the market down 700 points, I panicked... for maybe three seconds, then I thought I better see what opportunities I could take advantage of. Here are a couple of examples:
"I've been shorting FSLR calls at $160 and $170 on a rolling quarterly basis, pulling in $5K-$10K a quarter as the calls expire. Closed 20 calls 'prematurely' for a fast $5K profit, now looking to re-establish the position on a market rebound.
"Closed out IOC $80 covered calls for $2K profit; now waiting to see if it makes sense to re-establish on a big rebound.
"Made a quick grand on VIX, but sold too early – one day later and it would have been a $3500 gain.
"I had several limit orders that triggered and now have good entry points (at least they should be good entry points!) for SJT, BBX, and SBCF and Visa puts. Time will tell if these play out as expected, and with a big bounce on Monday, at least things started in the right direction. Bottom line, you keep your powder dry for these opportunities. When they come along you have to be able to pull the trigger. Of course, you need good ideas in the first place, so thanks to the entire S&A team for helping me be ready. Now I get to sit back and wait for the next opportunity." – Paid-up subscriber Jeff Persson
Ferris comment: Congratulations. You didn't let the market tell you what to do (not for more than three seconds, anyway). You looked for opportunities, found them, and acted swiftly to take advantage. Way to go, Jeff! You're in danger of becoming very rich, my friend.
"I'd purchased a lot of at the money SPY put options on Monday of last week. I'd been expecting a selloff any day from the markets lofty overbought levels. Witnessing the market plunge, I checked the prices to find a 100% difference between the bid/ask!! I contacted TD to verify and get an accurate price to which I got offered the same miserable offer. Legalized theft! I fought the settlement for 3 days before getting a print out of all the transactions at the bottom of the plunge. All sellers were skinned alive!" – Paid-up subscriber BW
"Question the wisdom of stop orders, recent fast dive in market would have killed most holdings with stop loss orders." – Paid-up subscriber "Mister Ed"
"I entered Jeff's VXX trade but sold on Thursday last week at $30. This one trade paid for my alliance membership. Thank you!" – Paid-up subscriber Charles Tobias
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
May 11, 2010