Profit from the Timber Boom

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Last week, U.S. markets ended the week slightly in the black, with the S&P 500 up 0.38% and the Dow Jones Industrial Average rising 0.40%. In contrast, the MCSI Emerging Markets Index pulled back from its recent bull run, ending the week down 1.16%.

The biggest gainer in your portfolio was Bank of Ireland (IRE) — soaring 16.95%, as the Irish recovery gains traction. Last week’s recommendation, Chinese portal Qihoo 360 Technology Co. Ltd (QIHU), jumped 4.20%. Your bet on the rebound in the PowerShares Listed Private Equity (PSP) ended the week 2.61% higher.

The pullback in markets was seen in a 2.74% drop in ProShares Ultra FTSE China 25 (XPP) and a 2.27% dip in ProShares Ultra MSCI Emerging Markets (EET). Your sales of the related option positions last week now seem extremely well-timed. You were, however, stopped out of United States Natural Gas (UNG) at its related options at a loss.

This week, let’s also say good-bye to HDFC Bank Ltd. (HDB) at a small loss, as well. This Indian bank has underperformed the broader emerging markets indices over the past two months. Let’s also sell the related call options.

Finally, I recommend that you do the same with Apple (AAPL). The short-term bounce I was expecting in the stock has simply not come through. Apple has also broken down technically, unable to break out on the upside. In addition, negative news today about iPhone5 screen order cancellations may also hit the stock hard. So, I am recommending that you cut your losses in Apple here, and redeploy your capital in other, more dynamic opportunities. (Remember to sell any related call options whenever we stop out of a stock or otherwise exit the position.)

One of those opportunities is in this week’s Bull Market Alert recommendation, Plum Creek Timber (PCL). With a market capitalization of $7.5 billion, PCL is the largest publicly traded timber company in the United States, holding approximately 6.6 million acres of timberlands across 19 different states.

And after a run-up in the share prices of U.S. homebuilders in 2012, timber is the best way to play the rebound in U.S. housing. After all, a typical 2,400 square foot, single-family home requires approximately 16,000 board feet of framing lumber and over 14,000 square feet of other wood products including plywood, particleboard and fiberboard. And as the biggest U.S. timber play, PCL is a stock investors are flocking to buy.

Truth be told, timber has had the same kind of run that your emerging markets positions in ProShares Ultra MSCI Emerging Markets (EET) and ProShares Ultra FTSE China 25 (XPP) have had in recent weeks. And with a forward price-to-earnings (P/E) ratio of 33, PCL is not cheap.

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But I’m looking at PCL from a short-term trading perspective. PCL broke out to the upside on Jan. 4 and is now in a solid uptrend. And although the stock may pull back during a correction, I do think that the momentum behind the U.S. housing recovery will carry this stock forward in the coming weeks.

So, buy Plum Creek Timber Co. Inc. (PCL) at market today and place your stop at $43.40. As with last week’s pick, Qihoo 360 Technology (QIHU), I’m going to wait for a pullback before recommending options on this one.

Note that the company will release its fourth-quarter and full-year 2012 earnings on Monday, January 28, 2013, following the market close.

Portfolio Update

Bank of Ireland (IRE) posted another huge week, jumping 16.95% as investors continued their rush back into IRE. Volume not only jumped past the records levels of two weeks ago, but also hit levels not seen since last April. Traders were particularly encouraged as news emerged that FMR LLC, the parent company of Fidelity Management Research, reported an 8% stake in the stock -– bringing the investment firm’s total ownership to 2.41 million shares. IRE is a BUY.

National Bank of Greece SA (NBG) fell 7.89% during the past five trading days. The Greek parliament passed a sweeping new tax reform bill last week. This precondition of further stimulus, mandated by Greece’s creditors, will bring increased budget revenue, help limit tax evasion and simplify the tax code. NBG is a HOLD.

Michael Kors Holdings Ltd. (KORS) continued last week’s rally, adding another 1.36%. KORS not only rose above the 50-day moving average, but also managed a successful short-term test of this level last week. Zacks released positive commentary last Friday in relation to KORS as it highlighted several apparel manufacturers and their ‘Buy’ ratings. Zacks maintains a “Strong Buy” rating on KORS — its highest rating. KORS remains a BUY.

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PowerShares Listed Private Equity (PSP) gained 2.61%. The grip of the global recession continues to loosen across markets, and this trend should continue into 2013. As corporations recognize better opportunity, and look to expand, they will be searching for new funding — and private equity will be ready and willing to fulfill this need. PSP is a BUY.

Discover Financial Services (DFS) added 0.87% last week. Discover’s president and CEO, Roger Hochschild, recently noted that DFS’ new “Discover it”™ card was the biggest product change his company has seen since the issuance of its Platinum card in late 1990. In fact, Discover’s new card highlights no annual fees or penalty rates, and even waives late fees the first time a cardholder makes a late payment. DFS closed out last Thursday and Friday above the 50-day moving average and is now a BUY.

HollyFrontier Corp. (HFC) rose 0.72%. HFC’s price action made a picture-perfect turn last week, rising off of the $52.50 support level, to run directly up along the 50-day moving average. HFC is still considered undervalued by many investors, and is more profitable than many of its industry peers. HFC also benefits from a terrific location — very near vast supplies of considerably cheaper West Texas crude oil. HFC is a BUY.

ProShares Ultra MSCI Emerging Markets (EET) took a breather last week and gave back 2.27%. The recent spike in emerging market funds put a damper on the upwards momentum investors have enjoyed in funds such as EEM and EET — making your recent sales of EET and XPP positions particularly well-timed. However, traders are likely watching closely and waiting for the right time to continue the charge upwards in these funds. EET is a BUY.

ProShares Ultra FTSE China 25 (XPP) followed suit with the broader emerging markets and dipped 2.74% as the “China Bull” is also taking a rest from its recent run. With China firmly on the rebound, expect further gains once the bull regains its footing. XPP is a BUY.

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ProShares Ultra MSCI Japan (EZJ) closed the week flat. Unrelenting pressure on the Bank of Japan (BOJ) to act soon remains as a very positive point for your position on the Japanese economy. Prime Minister Shinzo Abe recently stated that the BOJ must set a 2% inflation target to give markets faith that bold policy action will be the charge moving forward in the effort to curb 20 years of deflation. EZJ is a BUY.

Qihoo 360 Technology (QIHU) rose 4.20% for its first week in your portfolio. QIHU has been on a tear lately, moving straight up over the past three weeks. After hitting a new 52-week high on Monday, QIHU leveled off for the balance of the week. QIHU may take a breather, or even a slight pullback, over the coming weeks giving you an opportune chance to accumulate shares. I also anticipate an options recommendation when this move occurs. Stifel Nicolaus, Maxim Group, and Bank of America also reiterated their ‘Buy’ ratings on QIHU last week, raising their price targets to $37.00, $37.00 and $36.60, respectively. QIHU is a BUY.

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