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We’re recommending a stock for extreme investors only.  We have to warn you, it’s one of the riskiest, most dangerous investments we’ve ever recommended. But no one is looking at this company, market, or country as the big winner it could be. As a result, we believe it has the potential to make you a fortune.

If you’ve read the last few issues of IL, you know how excited we are about dollarization in Ecuador, and what we believe it will do to the country’s real estate market. But we’re also keeping a close eye on the stock market. Because look at what happened when three countries followed through with dollarization and took the power to print money away from their central banks:
• Hong Kong: Stock market rose 500% in four years 
• Panama: 100 years of monetary stability 
• Argentina: Market rose 800% in just three years, and inflation flattened to zero.
That’s how powerful dollarization can be.
The truth is, Ecuador has seen better days. That’s why dollarization is probably this country’s last chance to pull its economy out of the quicksand it’s quickly sinking in. Based on the examples of Hong Kong and Argentina, I’m convinced this one simple move will not only turn the Ecuadorean economy into a South American powerhouse, but will also provide investors with some serious profit opportunities.
After all, Ecuador has nowhere to go but up—because it’s bankrupt. Ecuador has the embarrassing distinction of being the first country to default on Brady bonds, and it’s in the middle of its worst recession ever. The financial system is burning to the ground, and bank deposits have been frozen for almost a year.
All you really need to know about Ecuador are these two things: 1) the new President, Gustavo Noboa, is much more popular than Mahuad. The military even likes him. And 2) dollarization will happen. Noboa endorses the same concept the deposed president suggested to save the economy.

The riskiest stock I’ve recommended
Before we get into the story of this investment, we must tell you again: this is the riskiest stock we’ve ever recommended. If you decide this investment is for you, only make it with money you can afford to lose. Because you may lose it all. It’s quite possible, though—even likely—you could make a fortune. But it’s equally possible that if you do, you may not be able to get your money back out of the country. Once you see how small the market is you’ll understand. Think of the 19th-century New York Stock Exchange, when trading took place on the street under a buttonwood tree. Meet the four buyable companies that trade on Ecuador’s stock market: two weak banks, one national cement company, and a giant retail monopoly. That’s it. We recommend the last one: Supermercados La Favorita, the retail monolith.

The only game in town
Imagine that one single company here in the States owned Wal-Mart, Toys-R-Us, Macy’s, Radio Shack, Blockbuster, and every supermarket in the country. That’s a spectacular market share—but that’s not even close to the kind of monopoly Supermercados has in Ecuador.They’re the only supermarket chain in the country. They own the largest toy-store chain in South America, Juguerton, and they own the nation’s largest department store chain, Sukasa. Plus they’re concessionaires of popular U.S. brands Radio Shack and Blockbuster Video.

By U.S. standards, 50-year-old Supermercados is small—$330 million in sales and a $125 million market cap—with only 2,967 shareholders...and a P/E of 4! 

How to buy
Unfortunately, just a small number of readers buying Supermercados at the same time will make it skyrocket into triple digits. I say unfortunately because the same can happen on the way down, as too many investors taking profits at once will cause it to crash. Because of this, you cannot use a trailing-stop strategy with La Favorita. There is not enough buying and selling down there to make it work. We recommend you buy up until a P/E of 30. 

This stock is difficult to buy. One option is a broker one of our close contacts has been using in Ecuador.  She operates on Latin time (everything is “mañana”), but I believe she will do a good job for you. Her name is Rosa Maria Gallardo, with Bank Guayaquil.  Reach her at (011)593-2-566801, E-mail: rgallardo@bankguay.com.
It can take up to a month to set up a trading account in Ecuador. It’s a lot of back and forth, FedExes, a lot of documentation to prove you are who you say you are (that you’re not dealing drugs or something). It’s a real hassle. 

This is, therefore, neither an easy nor a safe investment, but it could turn out to be well worth the risk. Steve Sjuggerud is the Investment Director for the Oxford Club. For more information, send E-mail to: oxford@oxfordclub.com.