If it’s the worst he has ever seen — considering Dreman made his name in 1980 when he said to buy stocks in the waning months of a 17-year bear market — the markets have to be pretty bad. The pain hasn’t been across the board, as you can see in the chart above. In the first half of the year, two sectors have managed to stay in positive territory.

Utilities and banks have been the traditional “widow and orphan” stocks. In the case of utilities, they are regulated, their profits are practically set by local governments, and they pay dividends. Banks, which earned top honors as the worst-performing sector in 2008, are no longer the safe havens they once were.

With utilities standing alone as the safest stocks, I’d expect to see even more money flow into the sector over the coming months. You’re not going to double or triple your money in this sector overnight with utilities. But, you know you’ll still have your money when you wake up.

In some cases, you’ll be able to collect a big, safe and reliable dividend. In a way, utilities will pay you to wait for the markets to recover. Continue here for a list of top-yielding utility stocks.

Good investing,

Andrew Mickey

Editor, BreakAway Investor
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Source: A Bull Market that Has Beaten the Bear

But Andrew Mickey says the soaring price of natural gas will hit fertilizer manufacturing profits hard — and hurt potash stocks in the process.

In the last twelve months, two leading potash producers, The Mosaic Company (NYSE: MOS) and Potash Corp (NYSE: POT) have seen share prices rise 260% and 176% respectively.

But Andrew says expectations in the fertilizer industry are too high for the short term. The soaring price of natural gas – a key ingredient in fertilizer manufacturing – is going to take a big lump out of profits…

When it comes to commodities, sometimes one man’s ceiling is another man’s floor. The faster the price shoots up for a basic input like crude oil or natural gas, the tougher it gets for some producers to maintain profit margins. Why does this matter, you ask? Because price patterns in oil and gas can sometimes tell you when not to buy into a certain sector or group — in this case, fertilizer stocks.

The fertilizer industry uses a lot of natural gas… and I mean a lot. Fertilizer can’t be manufactured without gobs of it. According to the GAO, “Natural gas is a key feedstock in the manufacturing of nitrogen for which there is no practical substitute.”

We can see the impact of soaring natural gas prices on fertilizer costs. In the chart below, the National Agriculture Statistics Service shows us how natural gas prices can destroy profits of fertilizer producers.

In 2001, natural gas prices spiked from $4 to $10 in three months. Meanwhile, nitrogen fertilizer prices only rose from about $200 per ton to about $325 per ton.

A lot of factors play a part in a 150% move (the amount by which gas prices rose). What’s perfectly clear is that fertilizer companies paid the price. While they had to pay 150% more for one of their major inputs (natural gas), they were only able to charge about 60% more for their product. When companies are unable to pass increased costs onto consumers, their shares can experience drastic sell-offs.

The dreaded natgas spike hit fertilizer stocks in late 2000… then hit them again in 2003… and then yet again in 2005, when the hurricane season pushed natural gas prices to extremes.

Following Hurricane Katrina, the fertilizer sector was hit with a 20% sell-off. The most natural-gas-dependent producer fell 40% after Katrina made the official leap from tropical storm to hurricane.

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Priced for Perfection

Of course, we’d expect it all to be priced in by now right? After all, three times in the past decade natural gas prices soared and fertilizer companies got hit hard. And yet, in this case, history has been forgotten once again. The price of natural gas has risen 80% this year, yet fertilizer stocks are still going strong.

Expectations are high — too high. Any fertilizer company that comes up short this earnings season is going to pay a heavy price.

Potash Corp is a good example. There have been seven analyst upgrades for Potash Corp in the past month. Consensus estimates for Potash Corp’s Q2 profits were $1.98.

Now, Wall Street is expecting $3.23. That’s a 63% increase in estimates in only a month! Potash prices are up, and the long-term picture can hardly look better… But Potash Corp is now a $70 billion behemoth. Earnings rarely grow that fast when you’re that big.

Again, expectations are just too high for the near term. And natural gas prices are going to cause a lot of fertilizer stocks to miss expectations. Given current market conditions, this is no time to come up short in the earnings department.

It’s Just Business

The next big opportunity I see is going short some of the major fertilizer stocks. Soaring costs and lofty expectations are rarely a profitable combination for investors looking to buy and hold.

In my premium investment advisory, Fear & Greed, we started tracking this situation almost two weeks ago. I warned “the race to fertilizer stocks is about to take a pit stop.”

Since then, the bubble showed the first signs of popping. All of the hot fertilizer stocks we were avoiding have been hit hard. On average, they’ve fallen 15% in two weeks. But they’re starting to rebound now, and things are shaping up for another big drop. Out of fairness, I can’t reveal the three fertilizer stocks that are most dependent on natural gas (and thus likely get hit the hardest).

But I can tell you a few things… like the fact that during the Katrina aftermath, these three stocks fell 20%, 35%, and 40%.

One of the three stocks — which I originally recommended two years ago this week — is up 280% in the past year. All three had upward revisions of earnings estimates from the money chasers on Wall Street in the past four weeks.

Most importantly, we have a very near-term catalyst when all three of these fertilizer companies report earnings at the end of July.

The bottom line is this: If you’re looking at buying into fertilizer now, it’s best to wait — and you might even want to join me in going selectively short.

If history and the price of natural gas is any guide, there’s probably a much better buying opportunity for fertilizer stocks just a short distance away.

Source: Natural Gas Boom Spells Short-Term Doom for Fertilizer Stocks

Potash prices have just started to move. Last year a ton of potash cost $210. This year, it cost $625 a ton. Within the next three years, prices will average $1,350 a ton. That’s according to fertilizer industry consulting firm Fertecon.Over the long term, the picture gets even brighter. Fertecon says long-term prices for potash will more than double from here.

Potash prices are going parabolic. This commodity is different, though. Potash is vital part of fertilizer. Food demand continues to rise. Global farmland per capita is declining. The agriculture boom is still in its early phases.

At the end of the day, you can drive less to reduce exposure to high oil and gasoline prices. But can you eat less food?

The smart money is betting big on potash. Two billionaires just cut seven-figure checks on a potash upstart two weeks ago. You can learn how to invest right along with them here.

Good investing,

Andrew Mickey

Editor, Fear & Greed

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Source: Still the Big Thing in Agriculture

The banks have gotten themselves into a heck of a bind, as we have seen, and Taipan readers have made good money going short. (Just yesterday, in-house options guru Adam Lass reminded us of his not-too-shabby 652% gains.)

Today, though, Andrew Mickey of Fear & Greed offers another angle on the story. Because the bankers went wild with foolish loans at the height of the housing frenzy, they are now left with empty pockets just when the getting is good.

That’s bad news for anyone who needs a bank loan… but potentially good news for investors like you and me. Read on to find out how Andrew plans to make a mint following the “profiteers” of the banking crisis — and how you can, too.

Have a great weekend,

JL

Revealed: The Biggest Profiteers of the Banking Crisis
by Andrew Mickey, Editor, Fear & Greed

I can tell you right now, I might get into trouble for telling this to you. But you know what, it’s the truth.

Over the past few months, the banking crisis has ebbed and flowed. Some months we’re told the banking crisis will send us back to the economic dark ages (a.k.a. the Carter administration). Other months we’re told in soothing tones that it won’t be so bad.

Now, I’m not going to tell you the banking crisis is over. I’m also not going to tell you there is another shoe to drop.

Frankly, I don’t know.

As far as I can tell, expectations are already pretty low for the economy and banking stocks, and most of the easy money has been made.

More importantly, I know that as we speak, a small group of investors will be able to turn the banking crisis into more wealth than most of us can imagine… all with a surprisingly little amount of risk.

How are they doing it? Well, they’re doing what the banks won’t. And they are set to make an absolute killing in the process. Let me explain how they’re turning the banks’ mistakes into their own profits… and how you can join them.

“Easy Money” Spigot Shut Off

The current situation in the banking sector is a bad one.

Years of aggressive lending, overleveraging and shouldering undue risk have created a situation that is going to take a long time and quite a few big cash infusions from our oil-rich friends to fix. But everyone has realized that. It’s “priced in,” as they say.

We’ve got to find the opportunities that everyone hasn’t quite figured out yet. That’s how you win as an investor, and that’s why I’m writing you today.

You see, in response to the current crisis, banks have tightened their purse strings. They’re not lending any money to anyone that can’t already afford it.

Picture this: Someone wants a loan to buy a house. He goes into his bank and applies for a mortgage. The banker is not asking about his current salary or credit rating; instead, the banker is concerned primarily with the potential borrower’s assets.

If they have enough to pay for the loan — in other words, if they don’t really need the loan — then the banker can say “done.” The deal is closed and loan is issued. If the borrower isn’t flush with cash and assets, on the other hand… no loan. The bank can’t afford to take on any risk right now. The easy money spigot has been shut off.

And that is what’s creating an investment opportunity that only comes along every couple of decades. One that is surprisingly low-risk… yet offers huge rewards.

The Smart Money’s Smart Move

While the banks are battening down the hatches, the smart money is making its move. If a bank is unwilling to make loans with a 20% down payment and a house as collateral, it’s certainly not going to make loans to small businesses.

Banks don’t consider track record of growth or future growth prospects when they consider funding the growth of a proven medium-sized business. They look at the worst-case scenario and the value of the businesses assets in the event of liquidation.

That’s where the smart money comes in. They don’t make loans in hopes of getting paid with a ho-hum interest rate. They take an equity stake in the company. And if the investment pans out, the financial rewards can be absolutely massive.

Right now, the smart money is funding everything worth funding. The banks aren’t about to take on the risk.

The smart money — those willing to take on the risk of funding a growing business — has the cash, and they are making investments with a time horizon from six months to five years. It’s a buyers’ market for the venture capitalists (VC), and they’re not passing up on too many opportunities.

Banks’ Pain, Venture Capitalists’ Gain

The lack of bank financing is creating a big opportunity for VCs.

You see, there are a lot of small- and medium-sized businesses that have already proven successful and are now looking for capital to expand. Because of the banking crisis, these businesses can no longer turn to the banks for the growth capital they need.

The economy is tough, and the risks (or the perceived risks, at least) are pretty big. Banks won’t touch these small, aggressively growing businesses. They’re often too busy borrowing money themselves just to stay afloat. But the entrepreneurial VCs of the world are happy to step in.

The VCs are in a great position. They know that many companies worth investing in have no place to turn. The VCs get to lay out the conditions of the investment and take a larger equity stake than they normally would.

They’re the only game in town; it’s a buyers’ market for them. And they know it.

But, of course, I realize that most of us just don’t have $5 million or $10 million available to put in a single investment like a VC fund does.

The great news is, I’ve found a way to put in as little as $500 and come along for the ride.

When Billionaires Bet, the Rich Get Richer

Don’t sit around trying to figure out how bad it’s going to be. It’s much more fun (and profitable) to see what the smart money is up to.

The latest opportunity I’ve come across has two billionaires, who recently cut seven-figure checks to get one start-up off the ground. I like the industry, have been covering it for years, and see plenty of growth ahead.

But in this case, what does it really matter what I think? There is a reason why these guys are billionaires: They choose their investments very carefully.

Learn more about my latest pick here and, more importantly, how you can go along for the ride without having to lay out what the average person would consider a fortune.

Andrew Mickey

Editor, Fear & Greed

Source:Revealed: The Biggest Profiteers of the Banking Crisis

If you thought the big money in commodities had run its course, think again. Right now, a desperate search is underway to locate supplies of the world’s newest commodity.

It’s so scarce that dealers won’t reveal to anyone where they score their supplies. But thanks to my inside contact, I’ve discovered the inside scoop. Now it’s your turn to get there first and easily triple your money!

I’ve recently identified this unique “black market” commodity situation, and if you are one of the first to jump on this opportunity you could see your investment grow exponentially. Allow me to explain…

You see, the blazing-hot commodity I’ve uncovered is in a brand-new part of the raw materials sector is desperate to get a hold of… but simply can’t find a healthy enough supply.

The little-known commodity is vital to many multibillion-dollar corporations’ bottom lines. Names like BHP, La Forge and Rio Tinto all stand to lose billions of dollars each month if they can’t replenish their supply NOW!

The Commodity Crisis You Won’t Hear About on CNBC

You’ve heard about skyrocketing oil prices, and $2,000 gold predictions. In short, we are in the middle of a massive global commodity boom.

But this new crisis is one few have heard about. This precious information has been kept under wraps by these companies because of the fierce competition for their dwindling supplies. In fact, the shortage of this commodity is getting so critical, industry insiders fear a dangerous black market is looming.

Thanks to my global network of contacts, I’ve managed to pinpoint the absolute best way to play this new commodity crisis. With classified information from one such well-placed contact, I’ve just uncovered a document that could be worth a substantial amount of money to this company I’m about to recommend… which could, in turn, mean a massive fortune for you.

Because you’re a valued Taipan Daily subscriber, I wanted to get this information to you before it hits the mainstream media. That way, you can get in first and enjoy a very lucrative ride.

This is an extremely time-sensitive situation, so let me give you a quick overview of the opportunity…

Secret Location Revealed!

I just received an overnight delivery of a packet of information, sent to me by my trusted source, which reveals the location of a vast reserve of this new “black market” commodity. It is certain to give one of these companies a giant leg up on the competition.

The fantastic news is that the company I just uncovered is set to make a killing and could deliver early investors a 127% gain in the next few months.

There’s just one catch: My contact made me promise that this sensitive information only be shared with my loyal readers. I just put the finishing touches on a confidential profit report that details this highly lucrative special commodity situation.

Of course, I gave my paid-up BreakAway Investor subscribers first crack at this report. I offered them the opportunity to claim this report just three weeks ago… and the stock has already gained more than $4 in share price since that time.

In just a moment, I’ll tell you how to get your hands on this report. But first, let me fill you in on more about this situation…

This won’t be the first time a commodities stock has delivered huge gains. In fact, commodities stocks have been on fire for the past two years:

• Consol Energy (CNX:NYSE), the No. 1 play on coal mining, skyrocketed 140% since the beginning of 2006!
• Freeport McMoRan Copper & Gold (FCX:NYSE) shot up 119% since 2006!
• Kaiser Aluminum Corp. (KALU:NASDAQ) jumped 65% since 2006!
• Randgold Resources Ltd. (GOLD:NASDAQ) exploded returning a hefty 200% since 2006!

And now it’s about to happen again with the commodity company I’ve discovered.

Your Last Chance to Receive This Urgent Information

You see, the stock I’m tracking today offers similar potential. In fact, I’m absolutely confident that folks who get in now can expect an easy triple in the next 12 months.

To help you participate in this lucrative situation, I’ve put together a brand-new special report with all the details about this company, including its stock symbol.

With your permission, I’ll have my customer service department rush a copy of the report to you. In return, all I ask is that you give my monthly research service, BreakAway Investor, a try.

Now, I realize you may be a bit hesitant to try something new. But let me assure you, my track record speaks for itself.

In fact, in the last few years alone, my expertise has helped BreakAway Investor readers pull in gains like…

• 530% on Generex…
• 268% on Williams Companies…
• 142% on Alliance Fiber Optic…
• 77% on TexCom Resources
• 146% on Mikohn Gaming…
• 96% on DG FastChannel…
• 103% on Acergy SA
• 88% on ICN Pharmaceuticals…
• 123% on E-Trade…
• 86% on Mesa…

And that’s just to name a few. And when you consider that the average annual return of the Dow, Nasdaq and S&P 500 over the past few years has been around 6%, you can see that BreakAway readers are absolutely destroying the markets!

Better yet, act now and you can try BreakAway Investor risk-free… without obligation or commitment!

Take the next 90 days to decide whether BreakAway Investor is right for you. If you like it, great. If you don’t, you can cancel — no questions asked. The important thing to remember is this: Within seconds after your positive reply, you’ll be able to download my brand-new Research Report, “Beat the Black Market Commodity Crisis!” The report will give you all the details about the stock I’ve been telling you about.

Remember, this company could easily deliver triple-digit gains over the next year, and has already gained more than $4 per share just in the past three weeks alone!

Plus, as a new subscriber to BreakAway Investor, you’ll gain immediate access to my current portfolio. This includes over a dozen of mycurrent investment recommendations, including some of the most unique and lucrative stocks and mutual funds on the planet. As a subscriber, you’ll get the inside scoop on every single one of them.

And again, take your time to decide if BreakAway Investor is right for you. If not, simply let me know before your three-month trial period has expired.

If you decide to cancel, I’ll send you a full refund, and you can keep everything you’ve received up until that point, including the free Research Report “Beat the Black Market Commodity Crisis!”

Plus, if you act now, you’ll instantly receive a $100 bonus gift!

Most investment advisory services can cost $1,000 or more per year. In fact, I know people who pay well over $5,000 per year for the exact information you’re going to get from BreakAway Investor, which normally has an annual subscription fee of a very reasonable $149.

But, if you act now — today — you’ll lock in a special subscription fee of just $49 for a full year of BreakAway Investor. That’s an instant $100 cash savings. And it means for about 14 cents per day, you’ll get cutting-edge investment information that costs some people over $5,000. And remember: If at any time during the first three full months you are unhappy with your subscription — for any reason — just say the word! I’ll send you a check to cover every penny of your subscription expense… NO QUESTIONS ASKED!

And even if you decide to take a 100% refund, you keep everything I send you, including the Research Report “Beat the Black Market Commodity Crisis!”… free.

You have absolutely nothing to lose. And your upside on this opportunity is enormous. But you must move quickly. This opportunity is extremely time-sensitive and could really impact your financial status. I would hate to see you miss out on such a lucrative opportunity.

Go ahead and follow this link to reserve your risk-free trial… and to download your free copy of “Beat the Black Market Commodity Crisis!”

Source: Beat the ‘Black Market Commodity Crisis’ With This Little Known Resource Gem

That’s exactly what’s happening. The global boom in liquefied natural gas (LNG) is just getting started. And the big boys in the energy industry are all cutting eight-figure checks to build the infrastructure. The U.S. Energy Information Administration went so far as to say, “[LNG] growth will require a $250 billion investment over the next 30 years.”

It’s already started. PriceWaterhouseCoopers says, “Given the number and scale of new LNG projects proposed or under construction, global production capacity could more than double by the end of the decade.”

There are bound to be quite a few investment opportunities with that kind of money being thrown around. As you can see in the chart above, Big Oil is on pace to become major LNG producers. But the largest player of all will be the world’s top natural gas company, Gazprom.

Russia’s de facto state-controlled natural gas company has long been eyeing its opportunity to increase its grip on the world through LNG. Now the major energy companies are falling in line to provide the opportunity the company/country (sometimes its tough to tell the difference) has been waiting for. Learn how Gazprom is going to do it, and how you can take advantage of the coming LNG boom.

Good investing,

Andrew Mickey

Editor in chief, BreakAway Investor

Exposed: The Truth Behind Putin’s Stealth Attack on America!

He’s got the world’s economy under his thumb, and his incredible power only continues to grow. Now Vladimir Putin is aiming to take down the U.S. economy and put Russia on top of the financial food chain. My exclusive on-location report from Russia is the only way you’ll learn how to protect yourself from his dangerous game — and bank gains of up to 493% this year fighting against it! His plans are already underway. The time to act is now. Read on for complete details…

Source: The $250 Billion Energy Bet

Since natural gas can now be liquefied and transported to the highest bidder around the world, booming demand in China, India and Southeast Asia is having a significant impact. Demand trends will stoke the natural gas flame for years to come.

As you can see from the chart above, liquefied natural gas (LNG) has been one of the fastest-growing energy markets in the United States. In 2001, 240 bcf (billion cubic feet) of LNG were imported. Six years later, in 2007, 240 bcf of LNG in just the first four months of the year.

But something changed last August. LNG imports were slashed. The decline in LNG imports coincided with a surge of more than 93% in natural gas prices here in North America.

You see, the U.S. isn’t dependent upon LNG imports for natural gas… but natural gas prices are highly dependent on LNG imports. In the past, LNG has always been there to fill that extra bit of demand that exceeds domestic production.

But when LNG isn’t available to fill that gap, prices soar.

It’s no wonder that Michael Stoppard, director of global LNG at Cambridge Energy Research Associates, claims LNG is “the next truly global energy business opportunity.” Learn how to capitalize on the global natural gas boom here.

Good investing,

Andrew Mickey

Editor in chief, BreakAway Investor

Exposed: The Truth Behind Putin’s Stealth Attack on America!

He’s got the world’s economy under his thumb, and his incredible power only continues to grow. Now Vladimir Putin is aiming to take down the U.S. economy and put Russia on top of the financial food chain. My exclusive on-location report from Russia is the only way you’ll learn how to protect yourself from his dangerous game — and bank gains of up to 493% this year fighting against it! His plans are already underway. The time to act is now.

Read on for complete details…

In late fall of last year, he said flat-out and on the record, “I’m telling my readers to look for oil at $120 a barrel.” You don’t get much more spot on than that — especially considering what other pundits were saying at the time.

OPEC hogs the headlines, but Russia is truly the wild card in oil prices these days. As you can see in the chart, this wild card is set to push oil prices even higher in the future.

Russia was aggressively searching for new oil between 1930 and 1990. The fall of communism, however, brought the fall of oil exploration, too. As a result, Russia is not finding any new oil.

The situation is already pretty bad, and it’s only getting worse. At the current rate new oil discoveries are being made, total reserves of the world’s second-largest oil producer could be cut in half by 2030. Meanwhile, production could be slashed by 75%.

You can bet $120 oil is just the start for the long term. Russia’s position as the dominant non-OPEC oil producer, and the dreadful state of its oil future, is only going to help push oil prices to the next level.

Economic growth in China, India and Brazil has been unfazed by the downturn in the U.S. And their thirst for oil is as strong as ever. Vladimir Putin and Russia will only become bigger players on the world stage in the process.

It’s going to get very scary in the years ahead as the Russia factor grows strong. Prudent investors are already taking action. Learn how to turn Putin’s power grab and mismanagement of the Russian oil machine into profits.

Good investing,

Andrew Mickey
Editor in Chief, BreakAway Investor

An industry with strong unions, a high degree of government regulation (some of it certainly justified, like safety), and competition willing to take large losses to maintain market share just doesn’t get me interested.

And yet, now that the airlines are on the verge of collapse once again, I’ve realized there is opportunity in this beaten-down sector. Airline stocks are falling across the board, and the contrarian inside me is starting to get interested.

When stocks go on sale and fear is running rampant, that’s when I think about becoming a buyer. Right now there is no perhaps no bigger firesale than the one going on in the airline sector. This perpetually cash-strapped industry is on the verge of yet another round of bankruptcies… and this time the problem is far bigger than declining ticket revenues.

The problems run deep. Simply charging an extra $5 for a meal or hawking some designer sunglasses for $200 apiece isn’t going to save the airlines. A renegotiated contract with the pilots’ union isn’t going to help much, either. These cost-reducing activities just delay the inevitable.

The United States airline industry is truly on the brink. As it stands, things could get bad enough for the government to step in and just run the whole deal. If you think delays and cancellations are bad now, you haven’t seen anything yet.

The Airlines’ Dirty Little Secret

The airlines have many problems, but one in particular stands to bring the entire industry to its knees. It’s true that record-high fuel prices are killing profits and outdated air traffic control systems are creating costly delays and cancellations. But the truly big problem is age.

The majority of aircraft in U.S. airline fleets are between 20 and 30 years old. Now, that’s not much of a concern for the time being. After all, the U.S. Air Force is still flying around B-52s that saw action in Korea.

Airframes last a long time, but maintaining them costs a lot, too. In the case of the B-52s, it takes about $4 million a year in maintenance expenses just to keep a single plane up in the air. Airlines simply don’t have the cash to pay for maintenance on their fleets.

That’s it, plain and simple. Old jets are bogging down the entire domestic airline industry. We’re just starting to see the impact of the problem.

In March, for example, Southwest Airlines (LUV:NYSE) had to ground 38 jets. The problem was fuselage cracks. In Southwest’s defense, this is a problem affecting many older aircraft. If inspected and deemed safe, it’s not much to worry about. When Southwest failed to inspect the planes and regulators got wind of it, however, there was no other solution than to ground a big part of the fleet.

Last week, American Airlines ran into similar troubles. The legacy airline, owned and operated by AMR (AMR:NYSE), was forced to cancel more than 2,500 flights as the FAA discovered wiring issues in almost half of American’s domestic fleet.

Wiring problems…fuselage cracks…these aren’t widespread issues for new planes.

United We Stand…

This problem affects nearly the entire industry on a domestic level. At the same time, bad news for U.S. legacy carriers spells profit opportunity for strong overseas competitors.

Take a look at EasyJet, for instance — a European discount airline franchise. EasyJet’s airplane fleet has an average age of just 2.3 years. In most cases, EasyJet is flying aircraft two decades newer than U.S. based airlines.

This problem is nothing new for domestic air carriers. In my premium investment advisory service, BreakAway Investor, we took a look at who has the solution. After taking a top-down view of the industry, we selected AAR (AIR:NYSE).

AAR provides maintenance services to the airline industry. In picking AAR, I thought we isolated the company that had the solution. However, after holding the stock for about a year, we noticed that sales weren’t increasing as fast as they should, considering the state of airline fleets.

Now, I’m not going to sit here and say I knew about the cracks and wiring problems. But we did uncover a big problem — and the company with the solution to that problem. That usually results in some pretty nice returns. In this case, however, the airline industry just wasn’t spending as much on maintenance as we expected.

When the markets started to dive and recession fears took hold, we knew the airlines simply wouldn’t be laying out the necessary cash to keep up their fleets. They simply couldn’t afford it. So we took a 25% gain on AAR and ran… fast.

Is there a solution to the aging aircraft issue? Not a near-term one. Bob McAdoo, an analyst at the Prudential Equity Group, states, “Very few new planes are scheduled for delivery to domestic airlines this year or next.”

That’s a problem for travelers in the United States, but an opportunity for investors. Let me explain.

Everything’s New

Over the winter, I took a six-country tour of Southeast Asia just to try and get an idea of how the region is progressing. Although they are certainly in different stages of development, these countries all have one thing in common: Everything is new.

Airports, office building, apartment buildings, bridges… everything. It’s all new. This was even more apparent in the airline industry. They’re all buying brand-new planes. All 10 of my flights in the region were on a fairly new aircraft.

The international airlines have a distinct advantage here, and aging aircraft will be an ongoing problem for domestic airliners. The plunges in share values over the past week are just the start. Once again, the airline industry is the easiest place to lose money.

That is, except among foreign carriers that have the financial wherewithal and orders in place for new aircraft. They’ll be the ones raking in profits from a global travel boom. Newfound emerging market wealth is creating a lot of opportunity, and this is just one example.

Although they’ve had an incredible run, we’ve got to remember there’s a reason we still call them emerging markets. With that status comes a significant amount of risk. I don’t care what’s happened over the past five years; I care what’s going to happen over the next two. What goes up must come down. The greater the upward run, the greater the risk in the future.

Just take a look at the chart above. Over the past three months the Dow has declined 5%. The MSCI India ETF (INP:NYSE) is off 15% and the FTSE/China Xinhua Index (FXI:NYSE) has fallen more than 40%. That’s a lot of risk. These emerging markets truly are emerging, and there’s going to be a lot of volatility.

There is, however, one emerging market that performs like a developed one: Russia. While India and China were getting crushed, the Russia Market Vectors ETF (RSX:NYSE) has done just as well as the Dow. After a quick correction of about 15%, the Russian stock market has resumed its climb and is down a mere 5% over the past three months.

When it comes to emerging markets like India and China, I’ve taken a “buyer beware” approach. Thanks in part to Vladimir Putin’s “stabilization” policies, Russia has avoided the volatility of other emerging markets and shown it has a less risk. Learn how to take advantage of the safest emerging market here.

Good investing,

Andrew Mickey
Editor in chief, BreakAway Investor

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