January’s euphoria in global markets has given way to concern about inflation, oil prices and increasing political risk in emerging markets. The last two months has seen you exit all of your country-related emerging market exchange-traded funds (ETFs). So far, that has proven to be a good decision. Almost all emerging markets — with the exception of your position in Russia through the Market Vectors Russia ETF (RSX) — have broken down technically. This chart of the MSCI Emerging Markets Index versus the U.S. S&P 500 over the last three months confirms this:
MSCI Emerging Markets Index versus the U.S. S&P 500
As a result, I have gradually shifted your Global Stock Investor portfolio back toward specific stock-related ideas. And as you can see in this chart of Universal Display (PANL) versus the S&P 500 over the past three months, a good stock pick can go a long way.
MSCI Emerging Markets Index versus the U.S. S&P 500
Here are the positions I am particularly bullish on, and the ones you should feel comfortable in adding to even in the face of negative market sentiment: Agrium Inc. (AGU), WisdomTree Japan SmallCap Dividend (DFJ), Global X FTSE Nordic 30 ETF (GXF), Market Vectors Russia ETF (RSX) and Universal Display Corp. (PANL). All of these positions represent broad themes — agricultural inflation (Agrium), extreme undervaluation (Japanese Small Caps), oil (Russia and the Nordic markets) or a specific technology (Universal Display) that will serve them well even during less bullish phases of the market.
I am more concerned about your positions in Freeport-McMoRan Copper & Gold, Inc. (FCX) and Vale S.A. (VALE), as their fate is closely linked to sentiment about emerging markets. In addition, there is increasing company-level risk in both Las Vegas Sands (LVS) and Jinko Solar (JKS) which may weigh on these stocks for some time.
That said, I think the long-term, “big picture” themes for these four stocks all remain in place and, depending on your time frame, the recent pullback may a good time to add to your positions. But there are reasons to think that holding them may not “feel good” in the near future.
Always remember your risk management discipline. Stocks that are trading above their 50-day moving average are a “BUY,” while those that have fallen below it, but have yet to hit their stop price, are “HOLDs.”
Portfolio Update
Agrium Inc. (AGU) ended the week 1.39% lower. This bet on agriculture has now pulled back to its 50-day moving average, but it remains a BUY. Raise your stop to $84.00.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) rose .04% this past week. Trading back above its 50-day moving average, CYB is a BUY.
WisdomTree Japan SmallCap Dividend (DFJ) fell 1.76% this past week. That said, more and more investors are recognizing the “stealth bull market” that is developing in Japanese stocks. DFJ remains a BUY.
Freeport-McMoRan Copper & Gold, Inc. (FCX) dropped 2.93% this past week. This stock has been breaking down technically throughout 2011, despite record earnings. Too bad, because it’s been one of our biggest winners. Remember, if it hits its stop of $47.50, you should be out. Trading below its 50-day moving average, this volatile stock is a HOLD.
Global X FTSE Nordic 30 ETF (GXF) ended the week 0.92% higher. The Norwegian market is benefiting from the surge in oil prices. Trading back above its 50-day moving average, this bet on the most dynamic part of Europe is a BUY.
JinkoSolar Holding Co., Ltd. (JKS) plummeted this week on fears of uncertainty about sustainable growth in China. This is a volatile, volatile stock, which has not been this oversold since mid-December. Trading below its 50-day moving average, JKS is now a HOLD.
Las Vegas Sands Corp. (LVS) dropped back another 3.14% this past week. With Securities and Exchange Commission (SEC) investigations weighing on the stock, it is breaking down technically and trading near its stop price. Asia’s Las Vegas is now a HOLD.
Market Vectors Russia ETF (RSX) jumped another 2.7% this past week, as soaring oil prices support the market. Trading above its 50-day moving average, RSX remains a BUY. Raise your stop to $37.50.
Universal Display Corp. (PANL) ended the week 2.86% higher. Universal Display already has licensing agreements with Samsung and LG Display but it still has plenty of room to run. With smartphones from Motorola Mobility, Nokia and Dell among many using OLED screens, Universal Display has a huge opportunity to break into the market in a bigger way. With earnings announcements coming up on March 14, strap yourself in for a wild ride. PANL remains a solid BUY. Raise your stop to $31.50.
Vale S.A. (VALE) fell 1.39% this past week. Vale’s exports totaled $24 billion in 2010, greater than Brazil’s $20.3 billion trade surplus and ranking as Brazil’s single-largest exporting company last year. With the stock trading below its 50-day moving average, Vale is a HOLD.
