‘Buy on the cannons, sell on the trumpets’

Nicholas Vardy

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

It was one of the worst weeks for global stock markets this year, with the Dow Jones down 2.35% and S&P 500 tumbling 1.97%. Not surprisingly, the MCSI Emerging Markets Index fell 2.83%.

Nevertheless, your Bull Market Alert portfolio held up well, with both the Bank of Ireland (IRE) and AbbVie, Inc. (ABBV) managing to close the week nearly flat. Trading above their 50-day moving averages, all of your current positions remain a BUY.

Coined in 1810, and attributed to London financier Nathan Rothschild, the phrase “buy on the sound of cannons, sell on the sound of trumpets” suggests that the start of a war is a good time to invest in the stock market. Conversely, the end of a war is a good time to sell.

With Russia ready to take over Crimea, and Russian troops poised on the edge of Eastern Ukraine, this week’s Bull Market Alert recommendation — Russia’s Open Joint Stock Company Gazprom (OGZPY) — is a test of that time-honored investing wisdom.

Gazprom is the world’s largest producer of natural gas, and it supplies 30% of Europe’s gas needs. Russia also regularly uses Gazprom as a political tool to force neighboring states to behave.

Here’s why I think there’s potentially a quick 30-50% gain in this stock.

First, Gazprom is down close to 90% from its peak and is ridiculously cheap. In fact, with the stock trading at a price-to-earnings (P/E) ratio of under 2, I can’t recall seeing a cheaper stock ever. The stock’s earnings yield (one divided by a P/E of 1.97) is over 50%, while it still pays a dividend yield of 6.7%. The last time Gazprom was this cheap was at the height of the financial crisis.

Second, buying Gazprom today is an extreme test of any investor’s contrarian instincts. After all, Russia’s press could hardly be worse. Over the weekend, Sen. John McCain called Russia “a gas station masquerading as a country.” That spells “big potential upside” to me.

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Russia is a perfect example of what I call my #1 contrarian indicator. When a country hits the cover of the Economist with a negative story, more often than not, there will be big gains in that country’s stock market. And Russia has made the cover of the Economist with a negative story two out of the last three weeks.

cover of The Economist, week of 2/22/14     Economist cover for 3/8/14, Kidnapped by the Kremlin

Sure there are plenty of reasons why investing in Gazprom might not work out. Gazprom may be the world’s #1 value play, but it may get even cheaper. Europe could start getting its natural gas from the United States, impairing the stock’s value. If we are at the eve of a reprise of the events of 1914 — the start of World War I — then all bets are off.

But I don’t worry about Gazprom being taken over by the Russian government. After all, the country already effectively controls the company through both formal and informal means.

That’s why I’m betting — and this is literally a “bet” — that any relief rally in Russia could drive it higher real fast and real quick.

So buy Open Joint Stock Company Gazprom (OGZPY) today. Note that this is traded on the pink sheets, although its average daily trading volume of over one million shares a day makes it extremely liquid. As this is an “all-or-nothing” bet, I’m not putting a stop on the stock.

There are no options on this one.

Portfolio Update

Bank of Ireland (IRE) closed the week flat, coming to rest just above the 50-day moving average (MA). Moody’s upgraded its rating for all Irish mortgage-backed covered bonds last Thursday. This continues the string of positive news driving Ireland’s economic recovery — particularly for its recovering real estate markets. IRE is a BUY.

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AbbVie (ABBV) also closed out a flat week. Last week, ABBV reported that its hepatitis C treatment attained nearly a 100% success rate in its recent phase-3 testing. This moves ABBV one step closer to filing for FDA approval on this new drug — a drug that will have a major impact on ABBV’s share price as sales projections for this new treatment were not included in its last earnings report. ABBV is a BUY.

Google, Inc. (GOOG) lost 3.46%. Many tech experts believe that the next big technical revolution will involve “wearables” — devices such as Google Glass and the various smart watches coming on the market. Not one to miss out on “the next big thing,” Google recently announced that it will release a new version of its Android operating system specifically for wearable devices. GOOG is a BUY.

Micron Technology Inc. (MU) dipped 1.88%, closing the week just above the 50-day MA. MU has essentially stayed above the 50-day MA since launching above it back on January 1, 2013. Based on this, MU may resume an upwards trend once some of the smoke clears from the Ukrainian crisis. MU will report earnings on April 3. MU is a BUY.

Latest Special Report

As a courtesy, I invite you to take a look at the new 2014 version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. In addition, I want to bring to your attention my latest special report, Top 4 Keys to Profiting in the New Wildfire Rally. Both of these reports are available on my website FREE for you and other subscribers.

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Nicholas Vardy

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Confirmation that governments are squandering money on ill-advised programs fueled by the easy-money policies of central banks worldwide became all-too-evident earlier this week when a European business leader responded to a question I posed at a press briefing.

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