Global markets continued their weak start out of the gate in 2008, deflating hopes of a January rally. Technically, the U.S. market is showing signs of breaking down. So it’s more important than ever to understand how your holdings in Global Stock Investor fit into the big picture.
First, the good news. ICICI Bank (IBN), ”India’s Citibank,” hit record highs this week, as did both Canada’s Potash (POT) and Barrick Gold (ABX). It’s a fundamental tenet of money management to sell your weaker positions and add to your winners. You may want to consider doing the same.
Some sectors and stocks related to global growth will continue to mirror the performance of the U.S market. In your Global Stock Investor portfolio, these holdings include global infrastructure play ABB Ltd. (ABB), steel giant ArcelorMittal (MT) and commodity “supercycle” bet Anglo American (AAUK). I recommend that you hang on to these stocks until the fundamentals change. This week, however, I am moving U.K.-based retailer Tesco (TSCDY) to a HOLD, as the stock struggles against the headwinds of an economic slowdown and a weakening British Pound Sterling.
Other positions will remain a very volatile ride. But sit tight. When market sentiment turns, these positions will rebound strongly, as they did in August.
PORTFOLIO UPDATE
Anglo American (AAUK) is performing weakly on the fears of a global economic slowdown. Here’s a reality check: the commodity supercycle isn’t over. The demand for commodities from China and other developing countries continues unabated. In a few months time, now will look like a great time to BUY.
ABB Ltd. (ABB) has gotten hit recently on the back of negative sentiment. Adding to the confusion: Citigroup cut ABB from “Hold” to “Sell” with a price target of 26.5 Swiss Francs, down from 34 Swiss francs. At the same time, Goldman Sachs upgraded the stock to “Buy” from “Hold” and boosted its price target from 31.5 Swiss francs to 35 Swiss francs. I pick Goldman Sachs. BUY ABB on its current bout of weakness.
Barrick Gold (ABX) is one of the few bright spots in the portfolio this week as the price of gold set an all-time high in the past week to soar past the $900 mark. When adjusted for inflation, however, gold is well below a record. An ounce of gold at $900 in 1980 would be worth about $2,300 today. With the stock ending the week up more than 19% since our initial recommendation, ABX remains a BUY.
America Movil (AMX) continues to break down on the back of negative sentiment as it is one of the biggest and most liquid names out there. Hang on for now. America Movil remains a BUY.
Coca-Cola Hellenic Bottling (CCH) was pummeled this past week, falling more than 10% in a single day, after broker Merrill Lynch cut its rating to neutral and wrote that the stock is fully valued. This selling is a huge overreaction. Look for the stock to bounce here. It remains a BUY.
iShares MSCI Brazil Index ETF (EWZ) continues to trade sideways. At the same time, it continues to show remarkable resilience even as the U.S market weakens. It remains (a volatile) BUY.
CurrencyShares Japanese Yen Trust (FXY) is emerging as a solid performer. After hitting a record high this week, the yen now is up 8.51% since our initial recommendation. This defensive position remains a BUY.
ICICI Bank (IBN) hit record highs again this week, before selling off yesterday. ICICI and other Indian banks were the subject of a comprehensive survey by consulting firm McKinsey. The report underlined the remarkable long-term potential of India’s banks. The stock is a BUY.
Millicom International (MICC) has become a big favorite among mutual funds who are buying the stock on the current bout of weakness. You should BUY Millicom, as well.
ArcelorMittal (MT) has been weak as concerns about global growth accelerate. The company repurchased 2,132,975 of its own shares between December 20, 2007, and January 9, 2008. As long as the fundamentals remain intact, the stock remains a BUY.
Potash (POT) hit record highs again this week. This is one of the most powerful megatrends around. BUY the stock on any weakness.
Tesco (TSCDY) has been hit hard by the negative sentiment against U.K. retailers, as well as by the collapsing U.K. currency. Given these headwinds, I’m moving this Warren Buffett-favorite to a HOLD.
