Assume you're being followed…

Editor's note: Much of the S&A Digest team is in the Bahamas this week for our company's annual Spring Editors Conference. Every year, we gather our analysts and closest business contacts to share our top ideas and ongoing research.

 

So in lieu of our regular Digests, we're presenting a special series excerpted from the March issue of the S&A Global Contrarian, written by editor Kim Iskyan. In his newsletter, Kim scours the globe for markets left for dead by most people that offer great value and huge potential upside for investors brave enough to follow him there...

 

Kim recently returned from Iran – a country that's closed to business with the U.S. It was a risky trip... But that's what Kim does for his readers. He searches the globe for uncovered, contrarian investment opportunities. And it doesn't get any more contrarian than Iran...

 

We hope you enjoy this special series.

 

 

 "Assume you're being followed... Don't do anything stupid."

 

In the weeks leading up to my trip to Iran, I started to get a lot of advice like this.

 

"Just be careful," my parents – who have traveled to far more exotic locations than I could ever hope to – told me.

 

"You're going to ask questions to business people? That's a very dangerous thing to do," a journalist friend of mine who knows Iran well warned.

 

It was one of the few times I had ever felt trepidation before visiting a new place.

 

 So why did I go to one member of George W. Bush's "axis of evil"?

 

It's impossible to get more contrarian than Iran. Sentiment toward the country is so bad that the market isn't even on most investors' radars. In fact, Western investors are legally prohibited from investing in Iran.

 

That's exactly what we look for at the S&A Global Contrarian. As I wrote in my service's introductory "How-To" special report: "The world's greatest investment opportunities are almost always disguised as disasters... "

 

It's one of the world's great wealth-building secrets: When things can't get any worse, they can only get better. That's why if a country is hated, there's a good chance I'll be headed there.

 

 What I found in Iran was the world's 21st largest economy... uniformly kind, polite, and welcoming people... the second-largest energy reserves in the world... and one of the most thrilling investment stories of my career.

 

Economic sanctions have prevented Western investment in and trade with Iran for 35 years. As a result, there's enormous pent-up demand in Iran for consumer products the rest of the world already has... and extraordinary potential wealth for the country when it can further develop its extensive oil and gas reserves.

 

I think these sanctions are going to be lifted soon. And when that happens, Iran could experience a massive economic boom. This type of boom could make early investors rich.

 

And in the March issue of S&A Global Contrarian, I showed readers how to position themselves to take advantage of the boom.

 

Before we delve into the financial opportunities in Iran, I want to dig a little deeper into the country...

 

 There are no McDonald's or Pizza Huts in Iran. You won't find CNN on the hotel television. Tom Cruise and Scarlett Johansson aren't playing at the local cinema. There are very few new cars on the road. There are no Holiday Inns, Hyatts, or Four Seasons. And I guarantee you won't find your favorite mall retailer here.

 

In short, you won't find many Western influences in Iran.

 

In 1979, a revolution overthrew the U.S.-supported ruler of Iran, Shah Mohammad Reza Pahlavi, and turned the country into the Islamic Republic of Iran. Since then, the U.S. has imposed a range of sanctions on the country.

 

In recent years, the United Nations and the European Union have joined in. Today's sanctions are meant to force Iran to limit the scope of its nuclear-development program – to prevent the country from producing nuclear weapons.

 

 These sanctions have locked Iran out of the international financial system by banning Western banks from conducting business with Iranian banks or financial institutions.

 

(Banks violate these sanctions at their own risk... In late 2012, U.K. bank Standard Chartered paid $327 million in fines for violating international sanctions on Iran and a handful of other countries.)

 

The sanctions also limit Western trade with Iran. (Iran can still sell some of its oil to international markets.)

 

Any U.S. business that wants to legally circumvent sanctions needs to apply for special permission from the U.S. government.

 

 Before I left for Iran, a friend put me in touch with his colleague at a law firm in Washington, D.C. I learned that Americans are exempt from sanction restrictions if they travel to Iran as tourists. Any costs that are incidental to personal travel are all right. But "it would be a crime for you to procure goods and services that are outside of this," I was told.

 

Business, of any kind, with Iran is strictly forbidden. In February, President Obama warned that the American government would come down "like a ton of bricks" on anyone who violates sanctions on Iran.

 

 In 2011, sanctions were significantly tightened. As a result, foreign oil sales are down about 60%. Oil production is down by around 33%. Oil exports account for about half of the country's total exports. That's why the Iranian economy contracted by 5% in 2013.

 

Meanwhile, inflation hit 45% last summer. Iran's currency, the rial, has also had a tough time. In the year following September 2011, the unofficial exchange rate for the rial fell from around 13,000 rial to one U.S. dollar to 28,000 rial to one U.S. dollar. The currency went on to lose two-thirds of its value relative to the dollar in 2012 when it hit 40,000. It has strengthened somewhat since then – it was around 29,000 when I visited.

 

For regular Iranians, the cost of sanctions has been astronomical. In a collapsing economy, just earning a living and supporting a family is an enormous challenge. For over three decades, sanctions have dictated what people can do, what they can buy, where they can travel, where they can live... and that just scratches the surface.

 

 

Editor's note: In tomorrow's Digest, Kim will explain how sanctions in Iran hurt businesses, individuals, and make everyday life in the country more difficult. And he'll describe how he evaluates contrarian markets for investment opportunities.

 

If you're interested in subscribing to the S&A Global Contrarian and reading about Kim's experiences in places like Iran, Russian, Kazakhstan, South Africa, and Zimbabwe, click here.

 

 

 New 52-week highs (as of 4/21/2014): C&J Energy Services (CJES), Callon Petroleum (CPE), Calpine (CPN), Comstock Resources (CRK), ProShares Ultra Oil & Gas (DIG), Eni (E), Enterprise Product Partners (EPD), Energy Transfer Equity (ETE), Flinders (FDR.V), Johnson & Johnson (JNJ), Eli Lilly (ELI), Range Resources (RRC), Superior Energy Services (SPN), Targa Resources (TRGP), Union Pacific (UNP), and Vocus (VOCS).

 

 Light day in the mailbag today... Send your comments and criticism to feedback@stansberryresearch.com.

 

Regards,

 

Kim Iskyan and Sean Goldsmith

Nassau, Bahamas

April 22, 2014