How to Profit from the BP Oil Spill

Nicholas Vardy

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

In addition, you stopped out of the iShares MSCI Chile Investable Mkt Idx (ECH) on Friday for a 25.33% gain. Although you exited Chile as a trading position, I maintain full faith in Chile and its free market orientation, and I am keeping this position for my clients at my investment firm Global Guru Capital as a long-term investment.

Your bets on commodities took a big hit last week, with palladium, silver and uranium all falling sharply. Although I think the sell-off in commodities is overdone, I am putting all of these positions on a temporary HOLD until markets stabilize.

This week’s Global Bull Market Alert recommendation, Transocean, Inc. (RIG), is a turnaround play, as well as a bet on the global economic recovery and the rising price of oil.

Based in Houston, Texas, Transocean is the world’s largest offshore drilling contractor. Transocean also is the company that owned and operated the oil rig that exploded, resulting in the Gulf of Mexico oil spill most associated with BP. 

Well, it turns out that neither the clean-up costs nor Transocean’s liability for the disaster was quite as bad as first expected. Yes, a White House panel last week found that BP plc (BP), Transocean (RIG) and Halliburton Co. (HAL) made a series of risky, cost-cutting moves that ultimately contributed to the disaster. But the report did not raise concerns that the costs associated with the spill would be more than what already was factored into Transocean’s stock price.

As a result, investors now are betting that the stock is off to the races. Transocean’s stock price broke out of a trading range to the upside last week.  Short-term option players are looking for more upside in Transocean as well. Just after the White House’s report, 57,000 option contracts crossed the tape. That’s triple Transocean’s normal daily option volume.

Finally, as your recent trips to the gas station confirm, with the global economy recovering, the price of oil has begun to shoot upward. Crude prices rose 21% in the second half of last year, and reached a 27-month high of $92.58 on Jan. 3. With the fate of Transocean’s stock price closely correlated with the price of oil, all of this adds up to solid prospects for Transocean’s stock in the weeks ahead.

So buy Transocean Inc. (RIG) at market today and place your stop at $62.00. For potentially even bigger profits, I recommend the May $80 call options (RIG110521C00080000).

Special Note on Ivanhoe Mines (IVN)

You’ll notice that there are now two types of Ivanhoe Mines (IVN) shares in your account — the regular shares ($24.15) and the “rights” shares ($1.54). That’s because Ivanhoe Mines’ shares traded before December 29, 2010, are considered to have had the value of a right embedded in the price of the share. Beginning on the “ex-rights” date — Dec. 29 — the rights are considered to be separate from the common shares. Every 100 rights will allow you to purchase 15 common shares of Ivanhoe at a price of $13.88 per share. A rights-offering prospectus and a rights certificate were mailed to each shareholder of record on January 5, 2011. You can sell these rights in the market or exercise them to buy additional shares of Ivanhoe Mines. For the purposes of the Global Bull Market Alert trading service, we will focus on the value of the original shares.

Portfolio Update

China MediaExpress Holdings (CCME) jumped 10.35% in the past week, rising 7.04% on Friday alone. As I have said, this stock will pop as the shorts in the stock are squeezed out. I am looking for this stock to go back above $20 quickly once this process is complete. CCME is a BUY.

Cognizant Technology Group (CTSH) ended the week slightly down, after hitting a high of $76.19 last Wednesday. The company’s five-year earnings growth rate is 35% and mutual funds and hedge funds own more than half of its shares, giving it strong institutional support. CTSH is a BUY.

Bank of Ireland (IRE) pulled back 10% this week, as sentiment toward Europe’s periphery again waned. As I have said, this stock is a swing for the fences and a bet that this will be the lone Irish bank that survives. IRE is a speculative BUY.

Ivanhoe Mines (IVN) jumped 5.37% this past week, and now is back above $24.00. From a short-term trading perspective, IVN remains a HOLD.

Melco Crown Entertainment Limited (MPEL) jumped 10.22% this past week. This holding company operates the Mocha Club and Crown Macau gaming interests in Macau, and is developing the City of Dreams casino and resort complex in the fastest-growing gambling market in the world. Asia’s Las Vegas is a BUY.

North American Palladium Ltd. (PAL) gave back all of its gains from the beginning of December this past week. This is the sharpest correction since the latest leg of the bull run. Although the long-term case for palladium remains in place, I am moving this to HOLD until the market settles.

Sina Corporation (SINA) soared 10.33% last week, allowing you to make big gains in last week’s recommended options, the March $72.50 calls (SINA110319C00072500). “China’s Twitter” is back to a BUY. Tighten your stop to $65.00.

Spreadtrum Communications, Inc. (SPRD) ended the week flat. SPRD is in the process of developing 4G TD-LTE chipsets, with the implicit support of the Chinese government. Still technically strong, this bet on technology remains a BUY.

Silvercorp Metals Inc. (SVM) dropped back sharply this week, as commodities buckled under selling pressure. With the stock dropping through its 50-day moving average, SVM now is a HOLD.

Uranium Energy Corporation (UEC) also fell back sharply this week, on news that technological breakthroughs have been made in China that will allow it to extract uranium and plutonium from spent fuel. My contacts have told me that they view this news as sheer bunk. Nevertheless, I am putting UEC to a temporary HOLD.

P.S. I will be having a special private meeting for my subscribers during the World MoneyShow in Orlando, Fla., on Friday, Feb. 11, at 11 a.m., in the Destin Room of the Gaylord Palms Hotel. If you want to attend my private meeting, please sign up by clicking here. Space is limited. To register for the MoneyShow, Feb. 9-12, call 800/970-4355 or click on this link to The World MoneyShow Orlando. Be sure to mention priority code 020758 to register for the show. I look forward to seeing you there.

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Global markets gave back all of their gains of 2011 yesterday; however, shares in Sina Corp. (SINA) -- "China's Twitter" -- broke out to record highs. The stock is now up 12% just since last Friday's close.


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