Betting on the eBay of Latin America

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 are also up this morning as fears of a Greek debt default eased following Greece’s request to tap a rescue package from its 15 partners in the eurozone and the International Monetary Fund.

This week’s Global Bull Market Alert pick, MercadoLibre (MELI), takes us to Argentina, not a country known for its stable political climate. But MercadoLibre is more of a bet on e-commerce and on Latin America as a whole, rather than on Argentina in particular.

It’s best to think of MercadoLibre as the “eBay of Latin America.” The company is the leading Internet auction site in the region. In fact, MercadoLibre acquired eBay’s Brazilian iBazar subsidiary in 2001. As a result of that transaction, eBay still owns about 18% of MercadoLibre.

Although it is based in Argentina, Brazil generated 54% of Mercado’s 2009 revenue, with Argentina and Venezuela each accounting for 16% of the company’s revenue.

MercadoLibre is also expanding its reach. And, it entered the Portuguese market last month, taking advantage of its Portuguese-language proficiency to expand its business in the Old Continent.

While eBay is having trouble maintaining its momentum, MercadoLibre fundamentals are strong — much stronger, in fact, than eBay itself. MercadoLibre’s earnings soared 83% last year on a 26% increase in revenue. With earnings due out on May 6, analysts expect MercadoLibre to grow its sales by a hefty 43% and its earnings by 50% in the first quarter.

The stock is also a big institutional favorite. Several of the top mutual finds in the world have initiated positions in MercadoLibre during the past few months. Technically, the stock has been very strong as well. Brokerage Thomas Weisel recently launched coverage MercadoLibre with an “Overweight” rating, putting a $70 price target on the stock. That’s a healthy 30% above its closing price on Friday.

So, buy MercadoLibre (MELI) at market today and place your stop at $44.00. If you want to play the options, I recommend the $70 September calls (QMB100918C00070000).

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Portfolio Update

Aixtron AG Ads (AIXG) came within a hairsbreadth of hitting a high for the year on April 20, before ending the week 4.2% higher. With technology spending soaring across the globe, this German tech play remains a BUY.

Cognizant Technology Solutions Corp. (CTSH) traded back near yearly highs last week, before ending the week only 1% higher. Cognizant will release its quarterly earnings on May 4. Analysts expect Cognizant to report earnings of $0.50 on sales of $940 million. That’s a 12-cent per share gain compared to the same period a year ago. CTSH remains a BUY.

UltraShort Euro ProShares (EUO) ended the week 2.17% higher. I expect that the euro will continue to be buffeted by negative headlines this week as details are hammered out on the International Monetary Fund-European Union bailout for Greece. Your bet against the European currency is a BUY.

CurrencyShares Japanese Yen Trust (FXY) fell back this week, as markets quickly shook off the bad news from Goldman Sachs. Remember, the role of this position is to go zig when markets go zag. It’s when markets pull back that you expect this position to prove its mettle. FXY remains a defensive BUY.

Millicom International (MICC) soared 7.53% last week, ending on a yearly high of $93.96 last Friday. The company announced better-than-expected results last Tuesday morning. Reported revenues were up 16% to $905 million; EBITDA rose 20% to $424 million; and EBITDA margins hit a record of 46.8%. The total number of subscribers grew to 35.1 million, rising 21% over the past 12 months. MICC remains a BUY.

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Mechel (MTL) fell sharply last week, and you hit your stop of $26.75 on intra-day trading, locking in gains of 20.93%. That was just bad luck as the stock quickly bounced from its low of $26.65. Since we were stopped out by a mere 10 cents, I am going to recommend that you re-purchase the stock here, and place your stop at a tight $24.00. MTL remains a BUY.

China North East Petroleum Holdings Ltd (NEP) was flat on the week. With news of regulatory risk bearing heavily on this stock, this is going to flounder until it breaks out sharply to the upside. If you have the patience, NEP remains a BUY.

P.S. Please join me Wednesday, May 12, 2010 at the MoneyShow in Las Vegas for a subscribers-only meeting. This exclusive event will take place from 10:00 a.m. to 11:00 a.m. in the Calabria room at Caesar’s Palace. To RSVP for this event, please click on this link, and supply the requested information. This private meeting will be open only to paid subscribers of Global Stock Investor and Global Bull Market Alert. See you there.

P.P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.

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It was a tough week overall for global stock markets.

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