Stocks with the highest perceived risk, Millicom International (MICC) and ArcelorMittal (MT), sold off sharply, while defensive positions such as Barrick Gold (ABX) soared and the Rogers International Commodity ETN (RJI) even hit record highs. These latter two picks are acting exactly as they should — as a hedge against a downturn in global stock prices. Given the turnaround in the gold price, I am moving Barrick Gold (ABX) from hold to BUY.
The fundamental stories driving Potash (POT) and Transocean (RIG) remain exceptionally strong. iShares MSCI Brazil Index ETF (EWZ), Sasol (SSL) and NII Holdings (NIHD) are now all technically very oversold and should bounce strongly once market sentiment improves.
Overall, seven of your nine current holdings are in positive territory since our initial recommendation, with Potash (POT) soaring 103.7%, Millicom International (MICC) jumping 32.2%, ArcelorMittal (MT) climbing 27.10%, and the iShares MSCI Brazil Index ETF (EWZ) rising 28.24%.
Given that the Dow Jones Industrial Average is off just about 20% since we recommended each of these picks, each is outperforming the market by anywhere between 48% and 122%. That’s no small feat in today’s tough bear market conditions.
Barrick Gold (ABX) jumped more than 12% this week, as investors sought safe havens from queasy stock markets and the price of gold for August delivery on the New York Mercantile Exchange surged $16.20 to $944.50 an ounce. With the stock resuming its upward momentum, I am moving it to a BUY.
iShares MSCI Brazil Index ETF (EWZ) is as technically oversold as it has been in the last two years. Supported by a commodity-heavy weighting, this ETF will soar as markets settle. EWZ is a BUY.
Millicom International (MICC) fell sharply this week as investors reduced their exposure to a perceived higher-risk position. This is ironic given that Vodafone announced that it intends to enter Ghana, Africa’s eighth-largest market, signaling the increased overall attractiveness of African cell phone properties. As disconcerting as last week’s drop is, it is well within Millicom’s normal trading range. Use any pullback as an opportunity to BUY.
ArcelorMittal (MT) dropped 5% yesterday, even as the world’s largest steelmaker acquired a 60% stake in Dubai Steel Trading Company and announced the launch of a new steel rolling facility at its Kazakh plant in which it said it would invest $7 billion by 2013. The recent weakness in the stock is a perfect opportunity to a BUY.
NII Holdings (NIHD) is showing signs of recovering from its recent bearish trend. With a target price of $80, the stock is a BUY.
Potash (POT) CEO Bill Doyle expects that potash prices will continue to surge, underpinned by rising food prices and global food demand. “We have a lot of pricing power… we are nowhere near peak pricing,” Doyle said, at a conference in Toronto hosted by RBC Capital Markets. Potash Corp is spending $4.5-billion to boost output from 10.2-million tons this year, to 15.7-million tons in 2012, and then to 17.2-million tons by 2015. Added Doyle: “The next five years will be the greatest period of growth in the history of the company, without question.” Potash remains a BUY.
Transocean (RIG) got a boost this week as S&P increased its rating on the stock from four stars (“buy”) to five stars (“strong buy”) and increased its 12-month target price to $188, based on $15.09 EPS for 2008 and a P/E of 12.5. Based on its strong, forward-looking growth rate, the stock remains a bargain and a BUY.
Rogers International Commodity ETN (RJI) may turn out to be the investment turtle beating the hare, and hit record highs again this past week. Its unspectacular but steady upward appreciation is welcome in volatile times. This diversified ETN is a BUY.
Sasol (SSL) steadied this week, in the face of otherwise weak markets. That’s a bullish technical sign for a stock that has a bullish fundamental future. With Sasol on sale, now is the time to BUY.
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