The Bull Takes A Breather

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Global stock markets took a breather last week. The Dow Jones fell 0.79% and the S&P 500 dropped 1.21%. The MSCI Emerging Markets Index pulled back 1.93%. Some markets, China in particular, continue to suffer disproportionately as the stock market in Shanghai fell to three-and-a-half year lows.
 
The strongest gainer in your Alpha Investor Letter portfolio was U.S. homebuilder Lennar Corp (LEN), which rose 1.88% on much better than expected earnings. Your bet on Japanese small caps through the WisdomTree Japan SmallCap Dividend ETF (DFJ) also ended in the plus column, as did Visa Inc. (V). Note that both the iShares JPMorgan USD Emerg Markets Bond (EMB) and iShares Nasdaq Biotechnology (IBB) actually hit 52-week highs this past week, before slipping back.
 
Your worst performer in your portfolio was Apple (AAPL), which pulled back 4.04% on disappointing iPhone sales related to the new iPhone 5. I find that curious, as I couldn’t even get on the waiting list to get an iPhone 5 with my service provider here in London. It seems to me the issue has more to do with a lack of supply than demand.
 
Three of your positions slipped below their 50-moving averages, and I have moved these to a HOLD: MSCI Malaysia Index (EWM), The TJX Companies (TJX) and Market Vectors Indonesia Index ETF (IDX).
 
With global markets pulling back this week, it’s worth reminding yourself that we are entering Q4 — the strongest quarter of the year.
 
Since 2009, the S&P has gained an average of 9% during the last three months of the year. Over the last 30 years, stocks have risen in Q4 24 out of 30 times for an average gain of 7%.
 
I’ve long called this phenomenon the “The Last Free Lunch in Global Investing.”
 
The bottom line? Although I think markets may continue their pullback into October, I expect markets to perform strongly between now and the end of the year. In any case, make sure you stick with your stops on all of your positions.
 
Finally, we have a special subscriber call scheduled for tomorrow. LIVE, from the heart of London’s hedge fund community. Just answer your phone when we call you between 1:50 p.m. and 2:05 p.m. Eastern Time (10:50 a.m. and 11:05 a.m. Pacific Time). You’ll automatically be connected to the subscriber-only teleconference, "Nicholas Vardy’s Best Places in the World to Invest in Now." To update your contact information to ensure you receive our call, please click here. (For subscribers outside of the United States, please dial 602/412-1001 to participate and enter pin # 14884 when prompted.) I’ll be discussing ‪my investment philosophy in the Alpha Investor Letter, including the importance of stop orders‬; my outlook on global financial markets, highlighting the best places to invest right now; the impact of the U.S. elections; as well as an update on your current Alpha Investor Letter portfolio. You also will have the chance to ask me questions personally.
 
I look forward to “meeting” you tomorrow.
 
Portfolio Update
 
MSCI Malaysia Index (EWM) fell 2.17% over the past five trading days. This exchange-traded fund (ETF) still holds a five-star Morningstar rating even though it has been correcting since hitting a recent 52-week high. Trading volume has been slowing during the past two weeks, signaling that the bears are beginning to tire. EWM is now a HOLD.
 
iShares JPMorgan USD Emerg Markets Bond (EMB) remained flat once again last week, but managed a new 52-week high last Friday — even in the face of a widespread market pullback. When the going gets tough for stocks, bonds get going. EMB remains a BUY.
 
Berkshire Hathaway (BRK-B) gave back 0.55%. BRK-B’s source of earnings is well diversified and stems from some of the most robust sectors in any market conditions. Berkshire’s 2011 earnings were $3.7 billion from the insurance sector, $3 billion in railroads, $3 billion in manufacturing/service/retail, and $1.2 billion in utilities and energy holdings. BRK-B is a BUY.
 
Visa Inc. (V) rose 0.67%. Visa has held up well in the face of the recent market pullback, staying near its 52-week high. Rating firm Sterne Agee reiterated its “Buy” rating on Visa last Friday and raised its price target to $160 — a substantial 19% above Tuesday’s closing price. V is a BUY.
 
The TJX Companies (TJX) fell 2.82% over the past five days. The TJX Companies announced a quarterly dividend Tuesday of $0.115/share. This dividend will be payable on Nov. 29 to shareholders of record as of Nov. 8. Slipping below its 50-day moving average, TJX is now a HOLD.
 
iShares Nasdaq Biotechnology (IBB) eased back 1.34% at the end of last week after hitting a new 52-week high. Both TheStreet and MarketEdge foresee additional gains in biotechnology and rate IBB a “Buy” and “Long,” respectively. IBB remains a BUY.
 
WisdomTree Japan SmallCap Dividend ETF (DFJ) added to last week’s gains, rising 0.75%. DFJ was one of the bright spots in your portfolio last week, briefly breaking through its tenacious $43 resistance level. This is DFJ’s fourth attempt at this line-in-the-sand since early July. DFJ remains a BUY.
 
Market Vectors Indonesia Index ETF (IDX) fell 2.60% last week, slipping just under its 50-day moving average. IDX is a strong play on Indonesian financials, but also diversifies nicely into other Indonesia market sectors. Consumer staples and discretionary spending companies make up another 29% of the fund with 16% invested conservatively in utilities, telecommunications and healthcare. IDX is now a HOLD.
 
PowerShares Global Listed Private Equity Portfolio ETF (PSP) lost 2.57%. PSP holds 70% of its positions in the financial services sector and 30% in industrials, spread across micro-cap, small-cap, and medium-cap companies. Buying into this exchange-traded fund is the easy way to invest in private equity. PSP is a BUY.
 
iShares Singapore Index ETF (EWS) dipped 1.40% last week, pulling back halfway to its 50-day moving average. EWS last touched its 50-day moving average at the beginning of the month and proceeded on a strong upward move to its recent 52-week high. I expect a similar move to occur in the near future. EWS is a BUY.
 
Statoil ASA (STO) was flat over the previous five trading days. Statoil announced Monday construction of a research center dedicated to improving oil recovery rates on the Norwegian continental shelf. This center will help boost STO’s recovery rate in the region from 50% to 60%, and is scheduled for completion in 2013. STO is a BUY.
 
Lennar Corp (LEN) added 1.88% last week and issued a strong earnings report. Lennar’s Q3 profits surged from $20.7 million ($0.11/share) to $87.1 million ($0.40/share), year-over-year. Revenue was up 34% to $1.1 billion. This beat the street’s estimate of $0.28/share on revenue of $1.05 billion. Lennar also reported a 44% increase in new home orders. LEN is a BUY.
 
iShares MSCI South Korea Index Fund ETF (EWY) fell 2.35%. South Korean regulators recently left interest rates unchanged, signaling strength in South Korea’s economy. However, regulators did signal the possibility of gradual cuts, if needed, and revealed a $1.3 billion support fund to buoy small businesses. EWY is a BUY.
 
iShares MSCI Mexico Investable Market Index (EWW) dipped 1.38%, a move in line with many other emerging market funds last week. Driven mainly by foreign investment and exporting, Mexico is gaining ground, based upon its low manufacturing costs, low inflation and large, youthful labor force. EWW is a BUY.
 
Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) lost 4.00% during the previous week, despite good news that the Chilean government awarded SQM a lucrative 20-year lithium contract on Monday. This contract gives SQM exclusive rights to mine a massive Chilean brine deposit for lithium. SQM is a BUY.
 
“China Strategy” Legacy Portfolio
 
Apple (AAPL) lost 4.04% last week. Apparently selling five million iPhones in under a week wasn’t good enough for Apple investors, as they knocked AAPL off of its recent 52-week high last week. With nearly every analyst that covers the tech giant predicting sky-high targets, AAPL remains a BUY.
 
China Kanghui Holdings (KH) gave back its prior week’s gains, dipping 2.79%. KH could not escape the rash of investor selling last week, but did manage to hold its 50-day moving average and “Buy” rating in your portfolio. KH remains a BUY.
 
 
P.S. Remember to pick up your phone tomorrow, Sept. 27, if you want to participate in my subscriber-only conference call between 1:50 p.m. and 2:05 p.m. Eastern Time (10:50 a.m. and 11:05 a.m. Pacific Time). You’ll automatically be connected to the exclusive event, "Nicholas Vardy’s Best Places in the World to Invest in Now." If you are outside of the United States, please dial 602/412-1001 to participate. When prompted, enter pin # 14884 to be connected. If you are unable to attend, there is no need to worry… the teleconference will be available online just hours after it is concluded. Simply log into your account at www.nicholasvardy.com, and listen to the recording in the "Teleconferences" section. If you want to ensure we have your contact information to call you, please click here

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