As often happens in Q4, global financial markets have regained their mojo. The Dow gained 1.4%, scoring its fourth straight up week and the S&P 500 added 1.1% for its third up week in a row. The S&P 500 broke through an area of prior resistance around 1,230 and closed last Friday at its highest level since Aug. 3. That means the bias of the market has suddenly shifted to the upside between now and the end of the year.
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This market’s strong performance was reflected in your Bull Market Alert portfolio, with your position in China’s Spreadtrum Communications (SPRD) rising 5.97% during the week. With the January $20 call options now up 61.29%, sell half of your options here to lock in some solid gains.
This week’s Bull Market Alert pick is Brazil’s Companhia de Bebidas Das Americas (ABV), commonly known as Ambev. Ambev, a subsidiary of global brewing company Anheuser-Busch InBev (NYSE: BUD), is the biggest brewery in South America and the fifth-largest brewery in the world.
Ambev operates in 14 countries and is the leading brewer in Brazil, Canada, Argentina, Paraguay, Uruguay and Bolivia. Its portfolio of beers includes Antarctica, Brahma, Bohemia, Labatt, Pilsen, Skol and Stella Artois. At the same time, Ambev is also the largest PepsiCo bottler outside of United States, and sells and distributes PepsiCo products in Brazil and other Latin American countries. Its portfolio includes Pepsi, Lipton Ice Tea and Gatorade. It also includes the international soft drink brand, Guarana Anarctica, which is made from a native fruit of the Amazon forest and the best-selling soft drink in Brazil behind Coca-Cola.
Much of Ambev’s focus is on Brazil — the world’s third-largest beer market. Ambev controls 70% of the Brazilian beer market and around 40% of the total beverage market. This strong market position has driven the company’s performance recently, and its dominant position in fast-growing Brazil is the key to its future pricing power moving forward.
In addition to it impressive portfolio of products, Ambev is known for its relentless focus on maximizing profits. By selling higher-margin, premium products and constantly improving productivity and efficiency of its facilities, Ambev has become remarkable at generating shareholder value. Average businesses typically offer a 12% return on equity (ROE). Terrific businesses generate over 15%. Ambev’s ROE was double that figure — over 32% in 2010. No wonder the stock held up well even during Mr. Market’s mood swings in August. Just look at how it performed over the past stormy six months against the broader MSCI Emerging Markets Index.
And with Ambev’s sales focused on the Q4 summer season (in Brazil), as well as a traditionally strong Q4 in emerging markets in general, I expect this stock to continue moving up between now and the end of the year.
So buy Companhia de Bebidas Das Americas (ABV) at market today, and place your stop at $29.00. If you want to play the options, I recommend the $35 April 2012 calls, (ABV120421C00035000).
Portfolio Update
Alexion Pharmaceuticals (ALXN) rose 2.37% for the week. ALXN reported a better-than-expected Q3 quarter on Oct. 20. Alexion’s earnings-per-share value was $0.37 versus an estimated $0.29 on actual revenues of $204.0 million vs. a $198.94 million estimate. Goldman Sachs and UBS both have a “Buy” rating on ALXN. In addition, Deutsche Bank has a $78 price target on the stock — a 14.1% upside from current levels. ALXN is currently a BUY.
Bank of Ireland (IRE) dropped 31.33% last week. That’s ironic, as the Irish economy has now grown two quarters in a row, and now boasts the second-highest growth rate in Europe. The bank’s “tier one” capital is 14% — among the strongest in Europe. In addition, “smart money” like Canada’s Fairfax Financial Holdings, U.S. buyout firm WL Ross & Co and Boston-based Fidelity Investments also just announced this past week that they have taken 9% stakes in Bank of Ireland. This option-like stock is currently a HOLD.
National Bank of Greece SA (NBG) moved up 1.67% over the past five trading days. Euro-zone leaders are struggling to come to an agreement on what should be done to solve the European financial crisis. European Union President Herman Van Rompuy recently stated that leaders will unveil a concrete recapitalization plan on Wednesday. If positive news emerges from this meeting, NBG should soar. NBG is a HOLD.
Spreadtrum Communications, Inc. (SPRD) jumped again this week, adding 5.97%. SPRD’s stock price spiked higher over the past few days on heavy volume, pushing through the significant $22 price level tested nearly one month ago. Sell half of your options here to lock in a 61.29% gain. SPRD stock is above its 50-day moving average and is a strong BUY.
ProShares UltraShort MSCI Emerging Mkts (EEV) went up 2.82%. EEV is holding just below its 50-day moving average. The ongoing negativity in Europe makes this hedge an important fundamental protection in your portfolio. EEV is currently a HOLD.
iPath DJ-UBS Livestock TR Sub-Idx ETN (COW) ended the past week 1.83% lower, as the price of livestock pulled back. With the fundamentals of supply and demand in place for this unusual market, COW remains a BUY.
