The Weekend Edition is pulled from the daily Stansberry Digest.

Take Advantage of This Reversal and Send Your Portfolio Soaring

By Chris Igou, analyst, True Wealth

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

As longtime 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.

Today, I'll 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 right now... 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.

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.

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

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.

For example, from the end of 1990 through September 1994, emerging markets dominated the scene, rallying more than 200% in less than five years. Meanwhile, the S&P 500 was up only about 50% over the same span...

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 kinds 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 has 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. But that's exactly what you should have done. The S&P 500 rallied nearly 500% from its 2009 bottom.

Right now, 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.

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 about 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 about 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. And each time has led to quick double-digit rallies in emerging markets...

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.

For example, folks were scared out of foreign stocks in April 2014. Emerging markets as a whole were down 15% from their 2013 peak into early 2014.

Investors couldn't handle the pain, so they got out of these stocks altogether. But that was a terrible time to sell... EEM rallied 13% into early September 2014, a solid gain in less than six months.

And this 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%, leading 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. As you can see in the table below, the broad market is getting darn expensive based on price-to-book (P/B) and price-to-sales (P/S) ratios.

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...

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 has been in the shadow 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.

Good investing,

Chris Igou

Editor's note: Our colleague Brian Tycangco sees quadruple-digit upside potential in emerging market stocks... And he recently named three stocks that he expects will outperform this group. It's all part of a massive tailwind that's pushing emerging markets to take their place as the "Next Chinas"... Click here to learn more.

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