Betting on a Bounce on Japan

Nicholas Vardy

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

Global markets this morning are buoyed by news over the weekend that Japan was making progress in its battle to control radiation leaks at a nuclear complex that was severely damaged in the country’s worst-ever earthquake. With the crisis contained, I am recommending that you sell last week’s recommendation in the ProShares UltraShort MSCI Emerging Market ETF (EEV) and close your option position in the MSCI Emerging Markets MSCI Index as well for small losses.

You also stopped out of Spreadtrum Communications, Inc. (SPRD) on March 15 for a small gain in the stock, after previously selling your options for an average gain of 107.65%.

This week’s Bull Market Alert bets on a bounce in the Japanese stock market through one of its biggest and most liquid stocks, Toyota Motor Corp. (TM).

Here’s why I expect Toyota to bounce strongly over the next few weeks…

The Nikkei 225 stock index lost nearly 18% in three trading sessions last week, before recovering slightly. This has presented investors with some bargains. Toyota is among them.

The Japanese market was already among the most beaten down in the world, even before the earthquake. Back in 1989, Japan accounted for half of total world-stock market value. Trading around 60 times earnings, it was also the most loved stock market in the world. Now that it’s lost 80%, is trading at 16 times earnings and is a victim of a massive natural disaster, it is the most hated. Measured by book value, Japanese stocks are trading at about half the valuation of the rest of the world.

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The investment premise for Toyota itself is straightforward. For all its problems — the safety recall crisis, the strong yen and the impact of the earthquake — the world’s largest automobile manufacturer is not worth 14% less today than it was on the last day of February. If Toyota’s ability to generate long-term profits has fallen at all, it has declined much less than its stock price.

In particular, only two of Toyota’s plants are located in Miyagi Prefecture, north of Tokyo, the region that was worst hit by the earthquake and tsunami. Although Toyota suspended production at all of its plants until last Wednesday, most are now open and Toyota plans to resume building parts for overseas factories this morning. The bottom line? Production should be back to normal in a few weeks time, at most…

So buy Toyota Motor Corp. (TM) at market today and place your stop at $69.00. For potentially bigger gains, I recommend the July $85 call options (TM110716C00085000).

Portfolio Update

Alliance Resource Partners L.P. (ARLP) jumped 8.72% this past week, and you booked 86.05% gains in your options. ARLP remains a BUY.

Cognizant Technology Group (CTSH) dropped 2.85% last week. I continue to keep a close eye on when we can best exit our April options. CTSH stock remains a BUY.

Bank of Ireland (IRE) ended the week 5.32% higher, soaring over 9% last Monday on JP Morgan’s upgrade of the banking sector. Mutual funds are starting to buy more of this stock. But with the stock still under its 50-day moving average, I am keeping IRE at a HOLD.

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Ivanhoe Mines (IVN) bounced 2.34% this past week. The company announced it discovered a new shallow copper, molybdenum and gold zone located about 10 kilometers north of its huge Oyu Tolgoi copper-gold project in Mongolia. This bet on the “Mongolian miracle” remains a BUY.

Nabors Industries (NBR) ended the week flat. With an uptrend intact, and trading above its 50-day moving average, this onshore oil driller remains a BUY.

National Bank of Greece SA (NBG) rose 6.67% this past week, mostly thanks to the upgrade of the European banking sector by JP Morgan. NBG remains a BUY.

Novo Nordisk A/S (NVO) ended the week 1.05% lower. This biotech bet remains technically one of your strongest Bull Market Alert picks. BUY this one with confidence.

ELEMENTS Rogers Intl Commodity Agri ETN (RJA) rose 1% this past week. Agflation isn’t going away. The recent pullback makes it a good time to add to your position. RJA is BUY.

Sina Corporation (SINA) ended the week 7.14% lower — though you did book a 171.43% gain in your remaining options last Monday. With more than 100 million subscribers, “China’s Twitter” is a BUY. Raise your stop to $74.50.

P.S. I am pleased to invite you to be my guest at The MoneyShow Las Vegas, May 9-12, 2011, at Caesars Palace, where you can meet face to face with more than 100 world-renowned investing experts. Be there as recommendations and advice are revealed about how to best position your portfolio to profit — in 2011 and beyond. As this new era of investing unfolds, smart investors know it’s imperative to stay informed and educated. The MoneyShow is your one-stop resource for the most comprehensive education, efficient research, and valuable advice. Don’t miss out… register free today! Be sure to use priority code 021714.

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The price of coal giant Alliance Resource Partners (ARLP) soared 5.74% yesterday, as global stock markets bounced strongly. While most stocks crumbled after the Japanese earthquake, this stock is up 12.43% in the past five days.

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