It was a strong week for our Global Stock Investor portfolio with all of our positions moving up during the week. Four out of our six positions are now showing a profit. Since our initial recommendations, Sweden (EWD) is up 12.91%, and last month’s pick, Tesco (TSCDY) is already up 8.14% in less than four weeks. India’s ICICI Bank (IBN) has also recovered strongly and is now showing a profit. All of our recommendations remain BUYS at these levels, except for Cognizant Technologies (CTSH), which we are moving to a HOLD.
Both the Euro and the Swedish kroner are showing remarkable strength against the greenback. The British pound broke through the $2.00 mark on Tuesday for the first time in nearly 15 years, after U.K. data showed an unexpected surge in inflation that prompted speculation about interest rate increases. The pound hadn’t hit this level since "Black Wednesday" in September 1992, when Britain dropped out of the European Exchange Rate Mechanism and George Soros made $1 billion in a single day in his bet against the pound. This is giving our European holdings in the Global Stock Investor portfolio a strong tailwind.
PORTFOLIO UPDATE
AM‰RICA M“VIL (AMX)
The saga surrounding América M³vil’s proposed acquisition of Telecom Italia continues. ATT, América M³vil’s negotiating partner, pulled out of talks with Pirelli about acquiring a 33% stake in Olimpia SpA — a shell company that controls Telecom Italia. América M³vil quickly issued a press release that its bid remains in force. One of its options would be to look for an Italian partner, which would make its bid more palatable to Italian regulators.
As we noted last week, the acquisition of Telecom Italia would be a boon for América M³vil. Telecom Italia owns 50% of TIM Brazil — the country’s second-largest wireless network — as well as 50% of Telecom Argentina and 50% of the largest wireless carrier in Bolivia. Although Goldman Sachs noted that AT&T’s exit increases the likelihood that América M³vil also withdraws from the Olimpia talks, don’t count out Carlos Slim — now the world’s #2 wealthiest man — just yet.
Regardless of the outcome of the Olimpia talks, América M³vil’s stock remains a strong BUY. The stock is up 6.26% and you should add to your positions on any dips. Move your stop to $41.50
COGNIZANT TECHNOLOGIES (CTSH)
Cognizant’s outsourcing model faces a growing challenge to offset the effect of higher wage bills and an appreciating rupee, India’s increasingly strong currency, which will inevitably affect the company’s operating margins.
The company thus far has met that challenge. But let’s see how this plays out during the next few quarters. Until then, we’re moving Cognizant to a HOLD.
SWEDISH ETF (EWD)
The Swedish ETF offers a terrific example of the impact of currency appreciation for U.S. dollar investors. The Swedish ETF began to noticeably outperform the underlying Swedish kroner-based OMXS index beginning in mid-March. The difference is due almost solely to the strengthening of the Swedish kroner versus the U.S. dollar.
The Swedish government announced additional tax cuts this week. That means that the Swedish ETF has a long way to go and remains a strong BUY. Move your stop to $31.50.
TESCO (TDSCY)
Tesco announced profits of 2.55 billion pounds ($5.1 billion) this week, in line with expectations, and a 13% increase over last year. Tesco also announced that it would double the amount of cash it would pay out to shareholders. London’s blue-chip index hit its highest level since August 2000, while Tesco’s shares also hit a record high. Tesco remains a strong BUY. Move your stop $22.50.
