Are Stock Markets Returning to ‘Normal’?

Nicholas Vardy

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

It was another solid week for U.S. markets, as the Dow Jones rose 1.55% and the S&P 500 ended the week 1.04% higher. Global markets took somewhat of a backseat to the United States, with the MCSI Emerging Markets Index up only 0.50%.

The biggest gainers in your Alpha Investor Letter portfolio included iShares MSCI Turkey Index Fund (TUR), up 3.67%; Two Harbors (TWO), jumping 3.12%; iShares MSCI Mexico Investable Market Index (EWW), climbing 2.23%; PowerShares Global Listed Private Equity Portfolio ETF (PSP), gaining 2.22%; and WisdomTree Japan SmallCap Dividend ETF (DFJ), rising 2.11%.

Two of your positions — iShares JPMorgan USD Emerg Markets Bond (EMB) and Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) — slipped below the 50-day moving average and now technically are a HOLD.

Overall, stock markets across the globe have had a strong start to the year.

In fact, I’d say that this is the first year since the start of 2008 that markets are starting to feel a bit more “normal.” The stock markets aren’t being held hostage to the latest headline coming from Greece or the latest utterance from Germany’s Angela Merkel. The relentless drumbeat of fear and pessimism generated by the media also seems to have abated at least somewhat. And U.S. investors are pouring money into the markets at a rate not seen in years.

Of course, the coming circus around the U.S. debt ceiling could change that in a heartbeat. But I do want to highlight a couple of optimistic current and future investment themes in your Alpha Investor Letter portfolio.

As this week’s financial results from U.S. housing builder Lennar Corp (LEN) confirm, the U.S. housing market now has some legs. And U.S. housing is a very big theme in your current Alpha Investor Letter portfolio, with no fewer than four holdings a direct or an indirect bet on the rebound in the housing sector: Lennar Corp (LEN), Two Harbors (TWO), S&P Global Timber & Forestry Index Fund (WOOD), as well as Vanguard Global ex-U.S. Real Estate Index Fund (VNQI).

All of these picks have shown strong gains since I recommended them. And if U.S. housing is turning around, they should continue to profit handsomely.

As a second, potentially optimistic theme, I also wanted to share another surprising insight from my daily monitoring of 38 global stock markets for my clients at my firm investment firm Global Guru Capital. It’s also a theme that I covered in yesterday’s issue of my free e-letter, The Global Guru.

Even as the European crisis fades from the headlines, Europe’s stock markets, specifically the problematic “PIGS” countries of Portugal, Italy, Greece and Spain are soaring — with Italy and Spain up over 6% year to date. European markets are regaining their “mojo,” and may be set for a surprisingly good year. Look for recommendations to profit from this theme in a future issue of The Alpha Investor Letter.

Portfolio Update

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MSCI Malaysia Index (EWM) rose 1.32% over the past five trading days. Malaysia’s initial public offering (IPO) activity topped $7 billion last year — a figure deemed “very good” by Malaysian Securities Commission Chairman Datuk Ranjit Ajit Singh. Singh also said the outlook for 2013 IPOs was “favorable.” EWM is a BUY.

iShares JPMorgan USD Emerg Markets Bond (EMB) ended the week flat. As we enter 2013, low bond rates continue to hold within emerging market economies. This is good news for bond issuance and allows big borrowers, such as corporations, access to growth capital for prosperity as emerging market economies continue to heal. Stopping just $0.01 short of the 50-day moving average, EMB is a HOLD.

Berkshire Hathaway (BRK-B) rose 1.65% last week. BRK-B continued its winning ways last week, ending the week with another new 52-week high, and a year-to-date gain of 6.5%. Hold on for more gains in 2013 as betting with Warren Buffett is a time-tested winning strategy. BRK-B is a BUY.

Visa Inc. (V) ended the week up 0.68%. Visa’s relentless upward charge took a breather last week, but still managed to hit a new 52-week high. Goldman Sachs upgraded Visa to a “Conviction Buy” last week and increased its price target from $160 to $188 — a hefty 17.5% gain from yesterday’s close. V is scheduled to report earnings on Feb. 6, and all points look positive in lieu of another year of record holiday transaction volumes. V is a BUY.

Market Vectors Indonesia Index ETF (IDX) ended the week flat. IDX continued its pattern of “dizzying dips” — stopping just pennies short of the 50-day moving average on Tuesday. The World Bank recently predicted a 6.3% growth rate for the Indonesian economy throughout 2013, citing Indonesia’s favorable investment policies as positive stimulus for economic prosperity. IDX is a HOLD.

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WisdomTree Japan SmallCap Dividend ETF (DFJ) added 2.11% over the past week. DFJ recovered more than half of its dip to the 50-day moving average last week. DFJ is a long-term proven winner for investors that “buy on the dips.” And, for those of you who enjoy making a few extra trades now and again, DFJ’s rolling style continues to be a consistent payer (since June 1) using the popular “trading a core position” strategy. DFJ is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) rose 2.22%. 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.

Lennar Corp (LEN) dipped 1.19% last week. LEN reported a stellar quarter yesterday, beating the $0.44 per share analyst estimate with a $0.56 per share earnings figure. This represents a quadrupling in profits — from $30.3 million to $124.3 million, year-over year. Revenue jumped from $952 million to $1.32 billion, beating the $1.26 billion estimate. LEN also reported a whopping 87% increase in its new-home order backlog figure of 4,053 homes. LEN is a BUY.

iShares MSCI South Korea Index Fund ETF (EWY) came in flat last week. EWY is back to a healthy support level at $62.00 and well positioned for buying more shares. South Korean corporate powerhouse Samsung has been unstoppable over previous quarters — even getting the credit (or blame) by some mobile phone gurus as the driving force behind the recent demise of Apple’s stock price. With a giant like Samsung by far the largest holding in the fund, and with plans to unleash mobile technology we can only dream of currently, EWY is bound to move higher in the months ahead. EWY is a BUY.

iShares MSCI Mexico Investable Market Index (EWW) rose 2.23% over the past five trading days. Mexico remains an excellent investment play on U.S. growth as nearly 80% of Mexican exports end up in American markets. However, Mexico is becoming a much bigger player in broader global markets as other economies discover “the new China.” EWW is a BUY.

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Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) dipped 0.83%. SQM continued as the single weak spot in your portfolio last week. Although somewhat slow, SQM has managed a steady comeback since hitting its low point in December 2012. SQM dipped to just below its 50-day moving average yesterday and is now a HOLD.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) gained 1.61% last week. VNQI’s upward trend remains intact and well supported by its rising 50-day moving average. With global economies just beginning their economic recovery, and continuing favorable Central Bank monetary policy, the outlook for international real estate could not be better. VNQI is a BUY.

Stratasys (SSYS) was flat last week. Stratasys announced Monday that it would hold an “Extraordinary General Meeting of Shareholders” on Feb. 25. This meeting will ratify the election of two new board members and authorize the appointment of a new chief innovation officer. SSYS is scheduled to report earnings on Feb. 5. SSYS is a BUY.

iShares MSCI Turkey Index Fund (TUR) rose 3.67%. TUR continued its relentless rise for yet another week, bringing your gains to 17.5% since its recommendation. With TUR becoming a little over-extended, look for any pullback as a buying opportunity. TUR is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) gained 1.13%. Although posting a gain and a new 52-week high last week, WOOD has leveled off over the past two weeks. However, with the housing recovery firmly intact as a long-term bullish trend through 2013, and lumber as the primary component for home construction, don’t expect WOOD to trade sideways for long. WOOD is a BUY.

Two Harbors (TWO) rose 3.12% for its first week in your portfolio. TWO punched through its formidable $12.00 price level last week to hit a new 52-week high. Investors have tested this sticking point four times since last September, and this break above is no small feat. Expect some volatility as the bulls and bears wrestle for control. TWO is scheduled to report earnings on Feb. 5. TWO is a BUY.


Nicholas Vardy, CFA
Editor, The Alpha Investor Letter
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