These were balanced out by sell-offs in iShares MSCI Emerging Markets Index (EEM) and Millicom International Cellular S.A. (MICC). Your other positions were broadly flat.
This week’s Global Bull Market Alert pick follows in the footsteps of George Soros, the granddaddy of hedge fund managers. While most hedge funds struggled last year with never before seen losses, this 78-year- old Alpha investor managed to eke out a 10% gain.
According to recent reports filed at the Securities and Exchange Commission, Soros increased his holdings in Brazilian oil giant Petrobras (PBR) by roughly 16 million shares, or 74% at the end of last year. In just 10 months, he has more than tripled his stake in the company to 36.8 million shares, up from 11.4 million.
Dipping your toe back into the stock market right now is not for the faint of heart. But here’s why I think Petrobras has the potential for big gains over the next few months.
First, although the price of oil has plummeted, the question of whether the price of oil will rise is a question of not “if” but “when.” Even if the demand for oil holds steady during the current global economic slowdown, the world still needs to replace the equivalent of one Saudi Arabia every three years. And as rivals cut back on exploration and development, Petrobras is spending $174 billion by 2013. In particular, Petrobras has expertise in deep-water exploration that has the potential to triple its reserves. Nor is this “pie in the sky” speculation. Petrobras’ CEO has said that the company can be profitable on new projects, as long as oil stays around $45 per barrel.
Second, like many other emerging market stocks, Petrobras’ stock price collapsed last year. Soros saw his own initial holdings collapse by 75%. The result? Today, Petrobras is trading at a P/E of 8.8. That’s dirt cheap for a company with its potential.
Finally, for all the focus on the S&P 500 on the verge of breaking its October lows, the markets have been much kinder to Brazil in general, and Petrobras in particular. Brazil is one of the top-performing global stock markets this year. Petrobras itself has more than doubled from its October lows, before it sold off with global markets during the past week. The stock easily could bounce 20% on any relief rally.
So buy Petrobras (PBR) at market today. Because of the risk in global stock markets, I recommend a relatively narrow stop of $20.00. For potentially bigger gains, I recommend the July $30 calls (PBRGF.X).
Portfolio Update
The PowerShares DB Commodity Double Short ETN (DEE) hit a record high of $99.52 last week. One of the secrets to successful trading is to “cut your losses and let your profits run.” You’ve already sold off half of this position for a 22% gain. Hold on to the rest for now, and tighten your stop to $82.00.
Market Vectors Double Short Euro ETN (DRR) ended the week flat — though it did hit a high of $56.59, before dropping back. The euro is under pressure as the banking systems of Central and Eastern Europe come under increasing pressure. This potential for an Asian-style meltdown will continue to weaken the euro.
iShares MSCI Emerging Markets Index (EEM) had a bad week. But consider that while the U.S market is now flat over the last three months, emerging markets are still up close to 20%.
Your short position in the CurrencyShares British Pound Sterling Trust (FXB) was flat this week. Once the British currency penetrates the $1.40 level, I expect the pound to fall further.
Your short position in the iShares MSCI United Kingdom Index (EWU) gained a solid 8% last week on the global sell-off. I’m looking for the U.K. stock market to continue to weaken.
The iShares iBoxx $ High Yield Corporate Bond (HYG) fell last week — but at less than one half the rate of the overall market. Yielding a solid 10.56%, this is a defensive play that should bounce strongly on any relief rally.
The Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) was broadly flat, proving its mettle as a defensive position with solid upside.
Millicom International Cellular S.A. (MICC) held up relatively well in the market sell-off. This stock is poised to soar. It just needs a bit of positive sentiment from the market.
