A Discounted Play on the Holyland

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
For the week, the Nasdaq and the S&P 500 each advanced 3.8%. With only a day of trading left in October, the U.S. major indexes have gained between 12% and 15% for the month. The MSCI Emerging Markets Index is up over 20% this month.
Last Thursday, you took profits in Spreadtrum Communications (SPRD) options by selling your remaining $20 calls for a gain of 107%, as the stock rose 13.01% for the week. It is now up 28.69% since you bought it. Raise your stop to $22.00.
You also stopped out of your “hedge” position in the Ultrashort MSCI Emerging Market ETF (EEV) at a loss. With markets turning strongly this month, this “hedge” position is no longer needed.
This week’s Bull Market Alert pick, Cellcom Israel Ltd. (CEL), is a play on the current strong bounce in emerging markets.
Cellcom is Israel’s largest cellular communications service provider. The company was founded in 1994 and, as of March 31, 2011, it provides its services to approximately 3.395 million subscribers.
Cellular communications is a mature industry in Israel, focused more on paying out cash flow than on generating enormous growth. That’s why Cellcom still boasts 9.8% yield, even after its recent run-up.
The attraction of Cellcom is that it is very cheap, trading at a price-to-earnings (P/E) ratio of only 6.8. So, even as earnings are expected to fall next year, Cellcom is trading a substantial discount to the emerging markets average P/E ratio of 10.
The stock is technically poised for a further sharp gain over the coming weeks. The stock fell the most in almost three weeks last Wednesday as the company said Chief Executive Officer Amos Shapira will step down on Dec. 31. The stock quickly recovered from the news, and broke out of the trading range it has been stuck in since early August. I now expect the stock to trade back up to the $26.25 level that it was trading at before the sharp sell-off in August. That means you’ll see a quick 15% pop in the stock over the next few weeks.
So buy Cellcom Israel Ltd. (CEL) at market today, and set your stop at $19.25. If you want to play the options, try the March 2012 $25 call options (CEL120317C00025000). Beware, though. The bid-ask spread on these options is quite high, making it tougher to make money on this particular option trade.

Portfolio Update

Alexion Pharmaceuticals (ALXN) remained flat for the week, falling 0.66% after hitting an all-time high last Monday, following an excellent earnings report. ALXN raised guidance for 2011, increasing its own earnings projections for Q4.  Zacks Equity Research has set an $82.00 price target on the stock — a 20.7% upside from current levels. ALXN is currently a BUY.
Bank of Ireland (IRE) jumped 9.47% last week. IRE moved higher as European financial regulators reported progress in efforts to stabilize the financial crisis. News that China will provide some much-needed financial backing gave global investors a boost of confidence on the future of Europe’s banking sector. IRE is currently a HOLD.
National Bank of Greece SA (NBG) fell 3.28% over the past five trading days. NBG’s stock price did jump nearly 12% last Thursday on news that European leaders would increase the already-massive Europe bailout fund. NBG remains a HOLD.
Spreadtrum Communications, Inc. (SPRD) rocketed 13.01% last week, as I wrote above, with the company continuing to make new 52-week highs and maintain a strong upwards trend. SPRD recently announced the acquisition of an 8.3% stake in partner Zoom Technologies. This partnership will open Spreadtrum to new overseas markets. Be sure to raise your stop to $22.00. SPRD reports earnings on Nov. 9. SPRD is above its 50-day moving average and is a BUY.
iPath DJ-UBS Livestock TR Sub-Idx ETN (COW) dipped 2.22% last week. COW corrected last week, coming to rest on its 200-day moving average (MA) — a significant level. Since rising from its 52-week low in June, COW has tested the 200-day moving average six times. On this recent seventh attempt, COW rocketed through the 200-day moving average on strong momentum. COW’s chart is in good shape to maintain a position above its 200-day moving average, as well as its 50-day moving average. COW is a BUY.
Companhia de Bebidas Das Americas (ABV) rose 2.96%. ABV continued its rise last week on strong momentum. Recent estimates show Brazilian beer consumption will rise 10% this year. This is good news for a company that already holds a whopping 70% of the market share. ABV is a BUY.

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