Markets Bounce Strongly as Google Splits Its Stock

Nicholas Vardy

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

Stock markets across the globe steadied this past week, as markets bounced strongly from oversold levels just in time for the start of Q2.

The Dow Jones rose 1.01% and the S&P 500 matched it closely with a gain of 1.07%. The NASDAQ steadied with a gain of 0.80%, and the MCSI Emerging Markets Index continued its recovery, rising 4.22%.

Big gainers in your Alpha Investor Letter portfolio included Las Vegas Sands Corp. (LVS), jumping 5.01%; the WisdomTree Japan Hedged Equity (DXJ), spiking 4.97%; WisdomTree Japan SmallCap Dividend (DFJ), rising 3.54%; the Market Vectors Gulf States Index ETF (MES), climbing 3.32%; Vanguard Global ex-US Real Estate ETF (VNQI), recovering 2.78%; and the iShares MSCI Ireland Capped Investable Market Index (EIRL), continuing its positive run by growing 2.72%.

Several of your positions crossed back above their 50-day moving average and returned to a buy. These included the WisdomTree Japan Hedged Equity (DXJ), WisdomTree Japan SmallCap Dividend (DFJ), First Trust US IPO Index (FPX), Vanguard Global ex-US Real Estate ETF (VNQI), Global X Guru Index ETF (GURU) and Las Vegas Sands Corp. (LVS).

Your position in the Market Vectors Gulf States Index ETF (MES) hit a new 52-week high as the Dubai stock exchange took the crown as the top-performing stock market in the world in Q1, soaring another 34% after more than doubling in 2013.

The big news this week is surrounding Google Inc. (GOOG). The company is splitting its shares, when shareholders of record as of March 27 will get two shares for every one they owned.

A new category of nonvoting “C” stock is being created to supplement the voting class of “A” shares that have been trading under the “GOOG” ticker symbol since Google’s initial public offering nearly a decade ago. The Class C stock is inheriting the “GOOG” ticker symbol.

Note that the Class A stock — your Alpha Investor Letter holding — will switch to a new symbol: “GOOGL.”

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The total number of Google shares will roughly double from the nearly 337 million outstanding as of March 17. As a result, the share price will probably be cut in half beginning Thursday, the first trading session following the split. This means Google’s Class A stock, which has been trading above $1,100, will probably drop to somewhere between $500 and $600 beginning Thursday. Since Google’s share price will be cut in half, be sure to reset your stop loss to $484, half of the current stop price of $968.

Why all the shenanigans? Google founders Larry Page and Sergei Brin own virtually all of the Class B stock, 46.7 million shares. That gives them 56% of the company’s voting power. Nevertheless, they were worried their votes eventually would slip below 50% as they sold more of their Class B stock and more Class A shares are issued to finance acquisitions and reward other Google employees.

Google’s reliance on nonvoting stock to protect their founders’ interests is not without precedent. Facebook, LinkedIn and Yelp all have issued nonvoting stock for the same reason as Google. Both cable and Internet service provider Comcast and cable-TV channel network Discovery Communications already operate under similar stock structures to the one that Google is setting up.

Portfolio Update

Visa Inc. (V) dipped 1.69% last week. Fifty percent of the world’s credit card fraud occurs in the United States, even though only 25% of card transactions originate in the States. When Visa finally implements new “chip card” technology next year, fraud may fall as much as 50% within six years, as was the case in the United Kingdom — saving Visa huge losses on card fraud. Visa will report earnings on April 24, after markets close. V is a HOLD.

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iShares MSCI Ireland Capped Investable Market Index (EIRL) gained 2.72%. EIRL took a firm bounce from the 50-day moving average (MA) last week. In fact, buyers acquired shares at a record pace yesterday as EIRL’s volume spiked to record highs. Rating agency DBRS also raised its rating on Ireland’s sovereign debt last week to “Stable.” EIRL is a BUY.

WisdomTree Japan Hedged Equity (DXJ) jumped 4.97% last week as investors pushed this Japanese exchange-traded fund above the 50-day MA. Japan recently missed inflation targets — an event that will likely force regulators to weaken the yen further — adding an additional tailwind to DXJ. DXJ is now a BUY.

First Trust US IPO Index (FPX) added 0.91%. FPX has been above the 50-day MA for the majority of the past year, and each dip has been a steadfast buy signal without exception. FPX spent much of the last week below the 50-day MA only to spike back above yesterday — likely signaling the beginning of yet another bullish phase. FPX is now a BUY.

Guggenheim Spin-off ETF (CSD) gained 1.16% over the past five trading days. This second of three “smart beta” plays in your portfolio trades very much like your position in FPX. CSD also experienced a recent dip to the 50-day MA and is currently making a vigorous bounce higher. CSD is a BUY.

Market Vectors Biotech ETF (BBH) rose 1.37%. The biotech sector suffered a significant sell-off over recent weeks, pushing BBH down along with it. BBH is now oversold according to several technical indicators and is due for a comeback. This is likely a good time to add to your position. Currently below the 50-day MA, BBH is a HOLD.

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The Blackstone Group L.P. (BX) added 2.43%. BX recently launched a public offering of 8 million additional shares of its class A common stock. This new capital will allow BX to originate and purchase additional commercial mortgage loans, as well as other new investments. BX is expected to report earnings on April 17, before markets open. BX is a BUY.

Las Vegas Sands Corp. (LVS) jumped 5.01% last week. The Gaming Inspection and Coordination Bureau in Macau recently reported a 13.1% rise in March gaming revenue, bringing the year-to-date increase to 19.8%. LVS rose above the 50-day MA yesterday to move back to a BUY.

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