Back into Europe

Nicholas Vardy

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

Global stock markets closed lower last week after Friday’s sharp sell-off. For the week, the Dow Jones fell 1.28%, the S&P 500 dropped 0.99% and the NASDAQ tumbled 1.28%. The MCSI Emerging Markets Index also pulled back 0.42%.

Two positions — MasterCard (MA) and Integrated Device Technology (IDTI) — slipped below their 50-day moving averages and moved to a HOLD.

This week’s Bull Market Alert recommendation takes you back into Europe, away from the range-bound U.S. stock market.

Even as the S&P 500 has risen a mere 1.17% this year, the WisdomTree Europe Hedged Equity Fund (HEDJ) is up 19.04% so far in 2015. You already booked double-digit percentage gains on this position after I recommended it on Feb. 9 and you were stopped out with a 10.07% gain on March 23.

And here’s why I expect the recent month’s pullback in European stocks to be a good time to place another wager on this currency-hedged bet on Europe.

First, despite their strong rally this year, European stocks remain far cheaper than their U.S. rivals. Based on the long-term cyclically adjusted price-earnings (CAPE) ratios, European stocks currently trade at an even greater 47% discount to U.S. stocks than back in February. That’s because, thanks to collapsing U.S. earnings, the CAPE ratio of U.S. stocks has actually risen to an eye-popping 28.8 since then. Only Denmark remains higher.

Second, European corporate earnings are expected to grow by 10-12% in 2015. In contrast, forecast earnings for the S&P 500 in the first quarter have fallen 8.2% since Jan. 1. In fact, the S&P 500 is likely to suffer year-on-year falls in earnings for both the first two quarters of this year — an “earnings recession.” Meanwhile, analysts for European companies have recently been revising earnings forecasts higher.

Third, Citibank notes that 80% of euro-denominated fixed income is yielding less than 1%. The German 10-year yield approaches zero. By that measure, European equities have “never [been] cheaper in 60-plus years versus credit/bonds.” That’s why Citi expects as much as a further 40% upside in European stocks by the end of 2016.

Exclusive  The #1 Bet of the World’s Leading Activist Investor

Throw in the European Central Bank’s (ECB) quantitative easing (QE) and a weaker euro, and the sky is all clear for European stocks. At the same time, as a U.S. dollar investor, you need to be hedged against the weak euro to keep your profits from evaporating when they are converted back to U.S. dollars.

The WisdomTree Europe Hedged Equity Fund (HEDJ) hedges out this euro currency risk. This ETF also focuses on European companies worth more than $1 billion that generate at least half of their revenue outside of Europe — revenues boosted by a weak euro.

So buy the WisdomTree Europe Hedged Equity Fund (HEDJ) at market today, and place your stop at $62.00. If you want to play the options, I recommend the August $67 calls (HEDJ150821C00067000), which last traded at $2.10 and expire Aug. 21.

Portfolio Update

WisdomTree Japan Hedged Equity ETF (DXJ) traded sideways for most of last week but ended up dipping 1.02%. Although the Bank of Japan (BoJ) appears to have no plans for additional quantitative easing beyond current measures, recent economic forecasts suggest that deflation may resume later this year. The upside of this is the possibility of further easing by the BoJ and a further boost to the Japanese stock market. DXJ remains a BUY.

MasterCard (MA) lost 1.85%. In a recent interview, MasterCard’s Southeast Asia president observed that 85% of the transactions in this part of the world still occur on either a cash or check basis. This gives MA a lot of room for growth as technology expands in this region. MA will report earnings on April 29 before markets open. Its moving average (MA) dipped below the 50-day MA and it is now a HOLD.

Exclusive  No Rate Hike Decision Boosts Stock Market

Integrated Device Technology (IDTI) closed the week just 1.04% lower. IDTI will report earnings on May 4 after markets close. Intel reported earnings last week and revealed some interesting insight on the “Internet of Everything” trend. Although Intel’s overall sales were flat, their “Internet of Things Group” sales figures reflected 11% year-over-year growth. This may serve as a positive sneak preview for IDTI’s quarterly report. IDTI fell slightly below the 50-day MA last week to become a HOLD.

iShares MSCI Hong Kong (EWH) fell 3.03% last week as it pulled back from a recent 52-week high. This newest addition to the Bull Market Alert portfolio is consolidating from its recent rise and creating a perfect opportunity to buy shares at a cheaper level before moving on its next leg higher. Hong Kong remains cheap, and EWH remains a BUY.

Newly Updated Special Report

As a courtesy, I invite you to view the newly updated version of The Top 12 Stocks for 2015, which features three of my top investment recommendations from the recent Orlando MoneyShow, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. This report and others are available FREE on my website to you.

NEW FEATURE — Receive your alerts via text! You now can receive a text message on your cell phone to inform you whenever a trading alert is sent. To add this free new benefit to your service, please send an email to CustomerService@NicholasVardy.com with the following information and mention in the email that you want your cell phone added to your account:

  • Your Name
  • Your Zip Code
  • Your Email Address
  • Your Cell Phone number
Exclusive  How to Profit from the Global Food Shortage

Please note that we can only deliver text messages to cell phones with U.S. or Canadian numbers. Standard text messaging rates from your provider apply.

Nicholas Vardy

Like This Article?
Now Get Our FREE Special Report:
Alternative Investing: Investing in Timber

Stock Investor editor Paul Dykewicz reveals why investing in timber may be one of the best long-term portfolio strategies you'll find today.

Get Access to the Report, 100% FREE


img
previous article

Exchange-traded funds (ETFs) are a great way to gain exposure to international assets and companies without having to pay big fees or jump through hoops for the privilege of owning foreign securities.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike Turner’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE