As the summer winds down and we move into the fall, volatility in global markets seems to be ebbing. Many of the stocks on our Global Stock Investor watch list are resuming their movement upward as the global megatrends that underlie our stock picks remain intact. That means that we will be looking to re-enter the markets soon.
Why not jump in today? Historically, Week 36 — usually starting Labor Day — is the single worst-performing week of the year for equities. And September, by some measures, is the weakest month. So let’s hold off on moving back into the markets for now — with an eye toward doing so next week, as we set up for what I expect to be a strong fourth quarter.
PORTFOLIO UPDATE AND WATCH LIST
Anglo American’s (AAUK) subsidiary, Anglo Platinum, will sell more than $1 billion in assets to create two companies managed and controlled by South Africans who suffered under apartheid. Cynthia Carroll, chief executive officer of Anglo American, said in a statement that the deal would "fundamentally transform the South African platinum mining industry." This global restructuring play remains our #1 pick on the global commodity supercycle.
ABB Ltd. (ABB) raised its outlook for the next five years this week and is forecasting strong demand for new and upgraded power infrastructure in China, India and the Middle East. The company expects the Asian market to expand by more than 50% by 2011. That’s double the rate of Europe and the Americas. ABB also expects the market in the Middle East and Africa to grow by 40%. On a company level, ABB now is targeting sales growth of between 8% and 11% — roughly double its previous 5% growth target. Operating profit, meanwhile, should rise at an annual rate of between 11% and 16% with margins advancing by as much as five percentage points. These figures are all significantly above ABB’s previous projections, and highlight why it is our top play on the global infrastructure boom.
America Movil (AMX) is set to turn into a dividend machine. Boutique firm Pali Research estimates that America Movil will generate nearly $20 billion of free cash flow during the next two and a half years. Pali Research projects that America Movil (AMX) could issue a special dividend as large as $5 per ADR in the Q4 of this year. That’s a whopping 8.3% special dividend based on a $60 share price.
Currency Shares Japanese Yen Trust (FXY) traded slightly lower this week, as global markets stabilized. Think of your position in the yen as a hedge against negative market movements. When the market is having a bad day, you can expect your yen position to do well. And with the yen undervalued by about 25% against the U.S. dollar in purchasing power terms, what I believe to be Warren Buffett’s mystery currency bet remains a BUY.
ICICI Bank (IBN) was highlighted in the Wall Street Journal in a piece on the Indian banking sector. The Journal noted that recent government curbs on overseas borrowings will give the entire Indian banking sector a further push. Here’s why.
Many Indian companies have borrowed abroad where rates have been lower. Typically, offshore borrowings, mainly in dollars, carry interest rates 3.5% to 4% less than those at home. Recent government curbs on this overseas borrowing will push up domestic credit growth by another 3% to 4% above the currently expected 25%.
The Journal also pointed out that Indian banks’ return on equity is among the highest in the world at 15% to 17%. That compares with an ROE of 11% in the developed markets such as the United States and Europe.
French investment bank CLSA has a 12-month price target for ICICI Bank of 33% above the stock’s current price.
Millicom International (MICC) has begun to recover strongly from the recent sell-off. Look for this to be one of our strongest performers moving ahead.
Arcelor Mittal (MT) is back on the acquisition trail, announcing that it has agreed to buy Wabush Mines, an iron ore and pellet producer in Northeast Canada, for $67 million. The transaction is expected to be finalized by December. Arcelor Mittal has recovered strongly, and is within striking distance of its previous high on July 12.
Tesco (TSCDY) has opened Express stores in the Czech Republic and Hungary — bringing to seven the number of countries where it has opened the small-store format. Tesco Express has proved a huge success for Tesco in Britain and around the world. Today, Tesco has almost 1,000 stores based on the Express format in Britain, Thailand, Japan, Korea, Malaysia, Turkey and Ireland, in addition to the Czech Republic and Hungary. Tesco’s first U.S. stores — branded Fresh & Easy — also are loosely based on the Express format. Tesco remains a haven of stability in a world of uncertainty. The stock is a BUY.
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