Revisiting an Old Favorite — And Taking Profits on the Japanese Yen

Nicholas Vardy

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

Millicom’s strategy has been unique and daring. While the Vodafones and America Movils of the world slug it out in big cell phone telecommunications markets such as Brazil and India, Millicom has cobbled together a patchwork empire that consists of 16 countries in Central America, South America, Africa, and South and Southeast Asia. In total, Millicom’s cellular operations are licensed to serve a combined population of approximately 278 million people — a number approaching the population of the United States.

Just how successful has this strategy been? Even at today’s share price — which is down over 60% from its peak — Millicom’s split-adjusted stock price has soared more than 50-fold since July 2002. Not bad for the runt of the cell phone litter. Although most of Millicom’s sales growth occurs in traditional Latin American markets, more than half of Millicom’s customers are in Africa and Asia. And that’s where much of Millicom’s future growth lies. Given the relatively low cell penetration rates, Africa is the fastest-growing region of the world for cell phone use. Indeed, in recent weeks Millicom emerged as the preferred bidder for yet another African country’s, Rwanda’s, third national telecoms license. Millicom also just announced that it is a consortium partner with cell phone giant Verizon, which has just taken a 15% stake in new Saudi fixed-line operator Optical Communications Co.

The collapse in Millicom’s stock price from a peak of over $124 to around $27 was a classic case of throwing out the baby with the bathwater. Credit crunch or not, mobile telecommunications isn’t going anywhere. If anything, it’s more important in developing countries that Millicom focuses on than in Sweden where everyone has a home computer.

Nor is Millicom’s current, absurdly low valuation supported by its recent financial results. Through the first nine months of this year, Millicom recorded a 53% increase in subscribers, bringing total subscribers to 30.6 million; a 35% increase in revenues; a 31% increase in EBITDA; and a 39% increase in net profit. Yet at Friday’s close, Millicom was trading at a trailing P/E of just over 8(!)

Equally importantly, from a technical standpoint, Millicom looks like it has established a solid uptrend. And both brokerage firms Raymond James and Stifel Nicolaus have recently upgraded the stock with a target price of $64 to $66 — about a 50% upside from Friday’s close.

So buy Millicom (MICC) at market today and place your stop at $28.00. If you want to play the options, I’d recommend the April $40 calls (FJMDH.X)

Here’s a word of warning. Millicom is a volatile stock. With a Beta of 2.33, you can expect it to be more than twice as volatile as the S&P 500.

Portfolio Update

The Japanese Currency Trust (FXY) and the ProShares Ultra Yen (YCL) closed at record highs of $114.10 and $30.91, respectively, last Wednesday. The yen rose for a seventh week versus the dollar, its longest rally since December 2004, and touched a 13-year high. FXY is now up 18.97% since late September, while its leveraged cousin YCL is up 9.66% in just the last three weeks. The yen has gained 25% against the dollar this year, the most since 1987. Most analysts predict that the yen will extend gains against the dollar into the first quarter of 2009, as the yen will be seen as the ultimate safe-haven currency.

Nevertheless, after having had such a solid run, I am recommending that you sell half of your positions in Japanese Currency Trust (FXY) and the ProShares Ultra Yen (YCL) to lock in your profits. Also tighten your stop in the Japanese Currency Trust (FXY) to $106.00, while holding your stop in the ProShares Ultra Yen (YCL) at $27.82.

The beleaguered British pound sterling resumed its downward trend against the U.S. dollar as it dropped below $1.50 yet again. The British currency has almost reached parity with the euro — which accounts for the cacophony of German, French and Italian shoppers I now hear on London’s main shopping thoroughfares. That’s positive for your short position in the CurrencyShares British Pound Sterling Trust (FXB). A weak British currency also supports your short position in the iShares MSCI United Kingdom Index (EWU) which dropped almost 8% over the last three trading days.

The PowerShares DB Commodity Double Short ETN (DEE) climbed back up roughly to break even as the oil price continued to plummet — falling below $34, notwithstanding OPEC’s planned production cuts. With the global economy screeching to a halt, look for commodities prices to continue to collapse and for DEE to zoom to record highs.

P.S. Markets and investors’ portfolios have taken a beating during the last few months. With a new president, a global economic downturn, U.S. recession, and $700 billion government bailout, investors are left wondering — is the worst behind us or is the other shoe about to drop? What do I do now? Making profitable investment decisions during these unprecedented times can be difficult if you do it alone. Attend the four most important days of the year in 2009, February 4-7, at the Gaylord Palms Resort and learn how the experts are finding profitable opportunities during the market crisis and how to position your portfolio for safety and growth. To register FREE, call 800/970-4355 and mention priority code 012653 or register on line!

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