This past week was a rough and tumble one for your Global Stock Investor portfolio, as many of your holdings dropped sharply and either hit or came perilously close to hitting their stop prices.
Potash (POT) had an incredibly volatile trading day yesterday, hitting your stop of $200 for a gain of 82.57%, before shooting back to close at $215.03. You were also stopped out of the iShares MSCI Brazil Index ETF (EWZ) at $82.50 last week for a gain of 22.18%.
There is not much I can say to explain this kind of volatility, except that it seems to me like a sign of panic in the markets — and a huge head fake. The fundamental story for Potash (POT) remains exceptional and Brazil (EWZ) has been traditionally a very volatile market within the context of long uptrend. Although hitting your stops is frustrating — especially if the stock bounces back above its stop price — sticking to your stops is a necessary part of disciplined investing. Allowing one bad trade to go against you has the potential to wipe out many months of profits. And unusually high volatility in a stock such as Potash (POT) yesterday also is a warning sign that it is time to take a step back from the market and allow it to settle.
Nevertheless, don’t be surprised to see us getting back into both of these positions as markets bounce off their lows. We did the same successfully last September with stocks such as ArcelorMittal (MT) and Millicom International (MICC) after the sharp market sell off in August.
On a more positive note, Transocean (RIG) remained strong in the face of the market sell off as it signed yet another $1 billion+ contract for its drilling services. The Elements Rogers International Commodity ETN (RJI) hit a record high last week, and its correction during the past couple of days makes it a good time to add to your position. Ditto for steel-maker ArcelorMittal (MT) which is buying back its own shares at a relentless pace.
Sasol (SSL) continues to sell off. Because it is so close to our stop price, I am moving it to a HOLD.
PORTFOLIO UPDATE
Barrick Gold (ABX) received a boost this week as investment bank UBS upgraded its forecasts for the price of gold through 2010, and gave Barrick a higher price target of $57. The stock is a BUY.
Millicom International (MICC) named Francois-Xavier Roger chief financial officer effective Sept. 1. Sweden’s HQ Bank upgraded Millicom to a "buy" with a price target of $116.00. It pointed out that Millicom is likely to double its market share and EBITDA margins in Colombia in the next three years and the company’s growth prospects in the mid-term are being underestimated by the market. We think HQ’s target price is too modest. Milllicom is a BUY.
ArcelorMittal (MT) used the recent weakness in its stock price to buy back 5,308,871 shares between June 30 and July 4 at a total cost of more than $475 million. When Lakshmi Mittal, the world’s fourth wealthiest man is buying back stock in his own company, you should do the same. ArcelorMittal is a BUY.
NII Holdings (NIHD) bounced over 6.5% yesterday on the market’s recovery. This turnaround play will soar once the market steadies. With a target price of $80, the stock is a BUY.
Transocean (RIG) announced a $1.19 billion contract from Italy’s Eni SpA. Eni will use Transocean’s drillship Deepwater Pathfinder, which can drill in waters as deep as 10,000 feet, for five years, primarily in the U.S. Gulf of Mexico. The rate of $652,000 per day is the highest ever for an existing ‘non-newbuild’ deepwater rig and adds 12 cents to the company’s 2010 EPS estimate. The stock remains a bargain and a BUY.
Elements Rogers International Commodity ETN (RJI) closed at a record high of $14.11 last week before dropping back during the last few days on falling oil prices. This is a good time to add to your position and this diversified ETN is a BUY.
Sasol (SSL) continued to weaken, and is flirting with our stop price. The weakening oil price is adding to this stock’s unjustified woes. It’s the stock’s technical behavior — and not its fundamental long-term prospects — that is making me move the stock to a HOLD.
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