Taking A “Flyer” On Chile

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Market reforms introduced by the "Chicago boys" in the early 1980s have made Chile a poster child for Latin American reforms. Chile’s stock market, also a strong performer in Latin America, is up 16% so far this year.

With a market cap of $5 billion, LAN is no upstart discount airline. Indeed, with its fleet of 78 jet aircraft, LAN is the most established carrier in South America. LAN provides domestic and international passenger services in Chile, Peru, and Argentina; air cargo transportation services in Chile, Brazil, and Mexico; and international passenger services in Ecuador. LAN’s vast route network reaches a large number of destinations throughout the world, and includes not only North and South America, but also Europe and the South Pacific.

Operating both passenger and cargo routes, LAN generated over $3.03 billion in revenues in 2006. And LAN is also firmly on the growth path — recently raising $181 million to help it expand its fleet. The airline plans some $2.6 billion in investments through 2011 to expand its fleet of airplanes for short- and long-haul journeys.

LAN’s financial results are solid as a rock. The company has almost doubled its revenues in the past five years, and expects revenues of around $3.6 billion in 2007 — representing a growth rate of close to 20%. LAN also recently reported a profit of $86.08 million for Q1, 8.1% more than in the same period last year.

Despite its impressive run-up, LAN is still inexpensive — trading on a forward P/E of less than 13.4 and on a Price Earning to Growth (PEG) ratio of less than 1. The stock also yields a solid 3.5%.

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LAN had a hiccup in its stock price due to some domestic pension fund reform proposals. But the stock has recently regained upward momentum, and this provides us with a terrific buying opportunity.

So buy LAN Airlines (LFL) at market today and place your stop at $77.50. There are no options on this one.

PORTFOLIO UPDATE

With the Chinese market tumbling 8.3% overnight, let’s close our stock position in Aluminum Corporation of China (ACH). (Note that we already closed our option position on Friday). The end of the China Mania that I predicted back in January may be approaching. Better to cut out at a relatively small loss, and reallocate our funds to this week’s opportunity.

Canada’s Potash (POT) split 3 for 1 last week. With the adjusted price of $68.71, the stock is up almost 6% over the past two weeks. Originally, I did not recommend call options on this one because of the upcoming stock split. However, Potash showed unusual call option volume on Friday that suggests news which may affect the stock favorably. So buy the September $70 calls (PVZ-IN).

In addition, we stopped out of Currency Shares Japanese Yen Trust (FXY) on June 1 at a price of $81.95 for a loss of 5.03%. Three of our positions — NII Holdings (NIHD), CVRD (RIO), and Posco (PKX) — are showing double-digit percentage gains. With our Posco options up 145.2%, let’s take our profits on our remaining options. Tighten your stop on the stock to $112.

P.S. Join me at the 29th Annual Money Show in San Francisco
I invite you to sign up for this year’s Money Show, July 26-28, 2007, at the San Francisco Marriott located in the heart of the city’s picturesque downtown. Join over 50 of the country’s premier policy analysts, advisors, and money managers who will share their best strategies for taking advantage of economic, political, and market opportunities to grow your investment assets. You can choose from over 150 educational workshops and 15 panel presentations. The show also features a state-of-the-art exhibit hall with more than 125 of the finest financial companies in the country displaying their cutting edge products and services. For complete details or to register for free admission, call 800.970.4355 (be sure to mention priority code #007384), or visit: The Money Show San Francisco’s Home Page

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Today, Aluminum Corp. of China's (ACH) stock has bounced about 3% and our options are up 50%.

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