Book Your Profits on the Buyout of China Kanghui Holdings (KH)

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Last week was a staid one for most global stock markets. The Dow Jones was up 0.18%, S&P 500 rose 0.29%, while the NASDAQ remained essentially flat. Emerging markets outperformed developed ones with the MCSI Emerging Markets Index ending the week 1.65% higher.
 
The big news in your portfolio was the buyout offer for China Kanghui Holdings (KH). The stock rocketed 24.32% this past week on news that that medical device giant Medtronic (MDT) would acquire the company for nearly $816 million in cash or $30.75 cents per share.
 
Of course, there is a chance that the acquisition will not go through- which is why China Kanghui Holdings (KH) is trading at $30.36 — a 39 cent or 1.25% discount to the offer price of $30.75. That also means that from now on the stock price will be subject to the whims of specialized hedge funds that focus on “merger and arbitrage” strategies like the one this situation offers.
 
I am recommending that you sell your position China Kanghui Holdings (KH) to lock in your hefty gains. As you know, many Chinese small cap companies have turned up major accounting issues in past. You don’t want your profits to evaporate in a similar scandal. So you should “take the money and run.”
 
Other big gainers in your Alpha Investor Letter portfolio this week included MSCI Malaysia Index (EWM), The TJX Companies (TJX), and iShares Singapore Index ETF (EWS), which gained 3.26%, 2.52%, and 2.50% respectively.
 
Reflecting this past week’s strength in emerging markets,  MSCI Malaysia Index (EWM), and Market Vectors Indonesia Index ETF (IDX)  both moved back above their 50-day moving averages and are now back to a BUY.
 
Three of your positions – are trading right at the 50-day moving averages-The TJX Companies (TJX) , WisdomTree Japan SmallCap Dividend ETF (DFJ) , Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM). 
 
Based on the overnight news from SQM not yet reflected in yesterday’s closing price, (see below), hold off on adding to your position in SQM until the dust settles. So I am moving that position to a HOLD.
 
With Lennar Corp (LEN) pulling back 3.50% and Citigroup upping its target price for the homebuilder this week, this is a good time to add to your position
 
It’s a sign of the strong relative strength of your positions in your Alpha Investor Letter portfolio, that, despite two weeks of pullback in the markets, all but two of your picks are BUYs. And many of your positions are now technically oversold, and ripe for a bounce.
 
Finally, I enjoyed getting to “meet” many of you on last Thursday’s special conference call. The downside was that I only had a chance to answer a handful of your questions personally.
 
I also wanted to remind you that if you couldn’t make the call, you can still listen to a recording of the call on my website NicholasVardy.com, by clicking on the link HERE.
 
Portfolio Update
 
MSCI Malaysia Index (EWM) jumped 3.26% over the past five trading days. The bears did finally tire last week as the bulls came charging back. In fact, this position has almost completed a round-trip from its 52-week high to 200-day moving average and back, in just three weeks. EWM rose back above its 50-day moving average is now a BUY.
 
iShares JPMorgan USD Emerg Markets Bond (EMB) added 0.58%. EMB continued its slow, steady rise again last week and hit yet another 52-week high. Positions that perform in this manner are a healthy addition to any portfolio, and provide steady support to balance some of your more volatile holdings. EMB remains a BUY.
 
Berkshire Hathaway (BRK-B) gained 0.81%. Berkshire Hathaway purchased another 282,403 shares of healthcare giant DaVita Inc. last week. This brings Berkshire’s ownership up to 10% of the company. This purchase coincides with some other very large insider share acquisitions occurring over the past month. BRK-B is a BUY.
 
Visa Inc. (V) rose 1.07% last week. Visa and MasterCard are close to wrapping up litigation that will increase  returns to shareholders. V may buy back $1.6 billion worth of stock, in 2013 and 2014, thereby increasing its earnings per share. JP Morgan also believes V will increase dividend payouts in 2015. V is a BUY.
 
The TJX Companies (TJX) gained 2.52% over the past five trading days. TJX has seen its earnings jump by double-digits for the past three years running – this from a company that’s been using the same sales model since 1956. TJX is just nine cents from its 50-day moving average, and remains a HOLD.
 
iShares Nasdaq Biotechnology (IBB) added 2.02%. IBB completed a bullish roll from 52-week high to 52-week high in just under two weeks. This is likely another sign of bullishness ahead as the biotech sector continues onward. IBB remains a BUY.
 
WisdomTree Japan SmallCap Dividend ETF (DFJ) dipped 1.80% over the past week. The Bank of Japan lengthened its quantitative easing QE program by six months, increasing it to $1.1 trillion. Sadly, this did not have the same impact as previously. DFJ remains a BUY.
 
Market Vectors Indonesia Index ETF (IDX) rose 1.92% last week. Indonesian President Susilo Bambang Yudhoyono recently said he expects Indonesia’s gross domestic product (GDP) to expand a robust 6.5% in 2013. IDX is now a BUY.
 
PowerShares Global Listed Private Equity Portfolio ETF (PSP) was flat for the week — a positive development on the heels of PSP’s recent correction from its 52-week high. Assuming sentiment remains positive, this price level may represent a good buying opportunity for PSP shares. PSP is a BUY.
 
iShares Singapore Index ETF (EWS) tacked on 0.45% over the past five trading days. This Singapore exchange-traded fund corrected recently, and then managed a good bounce from its 50-day moving average — a positive sign. Mobile operator StarHub, one of Singapore’s largest telecommunication companies, is working with Microsoft to create a “super Wi-Fi” network. This technology will utilize a slice of television bandwidth to transmit network wireless signals faster and farther, keeping Singapore at the forefront of developing mobile communication technology. EWS is a BUY.
 
Statoil ASA (STO) gave back 2.04%. Statoil will invest nearly $7 billion into the development of its Arctic Snoehvit natural gas field. The company believes this investment will allow them to maintain production in the region until 2040. Statoil is scheduled to report earnings Oct 26. STO is a BUY.
 
Lennar Corp (LEN) fell $3.50% last week on declining volume, likely completing a healthy correction to its 20-day moving average. Citigroup upgraded LEN today and raised its price target, based upon a positive outlook for LEN’s growth and margins. LEN is a BUY.
 
iShares MSCI South Korea Index Fund ETF (EWY) added 1.13%. The massive $58 billion dollar Vanguard Emerging Markets exchange-traded fund (VWO) is making a technical change that will force it to eliminate its exposure to South Korean assets. This, in turn, will send investors who are looking for South Korean exposure to funds like EWY, and may create a small buying frenzy in the future. EWY is a BUY.
 
iShares MSCI Mexico Investable Market Index (EWW) gained 2.50%. EWW reversed course and moved higher this week, even managing to hit a new 52-week high. If EWW can maintain the $66 price level, a sustained move higher may be in the cards. EWW is a BUY.
 
Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) held steady last week, dipping just 0.57%. SQM suffered bad news late Tuesday as the Chilean government rescinded the 20-year lithium contract, recently awarded to SQM, based upon technicalities in the qualification process. SQM is now a HOLD.
 
“China Strategy” Legacy Portfolio
 
Apple (AAPL) gave back 1.82% last week. Although the outlook for iPhone 5 demand looks rosy, AAPL continued to dip based upon a rash of news highlighting some minor short-comings in the highly-anticipated device — primarily involving the mapping technology. However, this too shall pass, likely making Apple seriously ripe for buying. AAPL is scheduled to report earnings on Oct 25. AAPL remains a BUY
 

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