Betting on a Bounce in This Credit Company

Nicholas Vardy

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

It was a tale of two markets last week, with the stock market rallying strongly for the first three days of the week but falling sharply on Thursday and Friday. You saw this in last week’s bet on EOG Resources, Inc. (EOG), which hit a new 52-week high early in the week yet ended the week down.

In the end, stock markets as a whole ended the week in the red, with the Dow Jones down 0.29%, S&P 500 dropping 0.08% and the NASDAQ pulling back 0.49%. The MCSI Emerging Markets Index also corrected 2.83% after a strong past few weeks.

Two of your Bull Market Alert positions ended the week strongly, with Micron Technology Inc. (MU) soaring 5.65% and Grifols, S.A. (GRFS) jumping 5.16%. Micron Technology Inc. (MU) hit a new 52-week high and moved back to BUY after crossing its 50-day moving average.

Headline-driven markets are always tough to navigate. Making money in stocks is difficult in a choppy market. And we are also entering a traditionally weak time of the year.

At the same time, negative headlines sometimes offer a unique opportunity to buy into strong stocks that have been punished unfairly by the market. I believe there is just such an opportunity with the recent sharp sell-off in Visa Inc. (V) shares.

In the past few weeks, Visa has slipped more than 12.3% from its 52-week highs, having traded as high as $226.98 on Feb. 26.

Visa’s 4.34% sell-off last week came entirely on Friday, following earnings results announced on Thursday night and on news that Russian President Vladimir Putin has called for Russia to establish its own payment system in place of Visa and MasterCard.

I believe the sell-off in Visa is an overreaction and hardly worth the over $5 billion loss in the company’s market capitalization on Friday.

First, let’s look at the impact of Russia on Visa’s earnings.  For all of Putin’s threats, Visa’s CFO estimates that the events in Russia could reduce Visa’s 2014 earnings by “several pennies” on expected earnings of more than $8 per share. That’s hardly a huge impact.

Second, on Thursday, Visa’s management indicated that revenue would only be growing at 8-9% annually, with the stronger dollar expected to take two percentage points off of this year’s figures over the short term.

Here, some perspective is crucial. Currency movements are temporary and just part of doing business across borders. In the very same earnings report, Visa actually crushed Wall Street expectations of $2.18 in earnings per share, posting instead a whopping  $2.52. That’s a better-than-expected 31% year-over-year increase.

Visa has remarkable strengths. Its market share is more than 50% globally, and it processes more than 58 billion credit and debit transactions annually. Its net profit margins are over 50%, and it has no debt. Visa remains on pace for nearly 15% annual earnings per share growth, thanks to a combination of 10-11% organic growth plus 3-4% annual growth from stock buybacks. And I believe the current short-term dip in share price will both stimulate additional stock buybacks by Visa as well as put a floor under the price of the stock.

So buy Visa (V) today at market, and place your stop at $170.00. If you want to play the options, I recommend the June $200 calls (V140621C00200000).

As Bull Market Alert is a trading service, I’m betting on a short-term bounce in Visa. But I should disclose that I hold a large personal and long-term stake in Visa myself and added to my own position during the recent market pullback early last week.

With this week’s Bull Market Alert recommendation, you’ll be getting a better price than I did.

Portfolio Update

The Bank of Ireland (IRE) dipped 1.22% last week. Bank of Ireland released a report last Friday stating it was making good progress on rebuilding its profitability and repairing the quality of its loan books. IRE is a HOLD.

AbbVie Inc. (ABBV) added 1.22%. ABBV reported positive earnings last Friday, beating expectations. First-quarter earnings per share were $0.71, up 4.4% from the prior year, topping company guidance of $0.67-$0.69. Revenue was $4.56 billion, up 5.4% from a year prior. Global sales of Humira, one of AbbVie’s flagship drugs, rose 18% to $2.6 billion. ABBV is a HOLD.

Thermo Fisher Scientific, Inc. (TMO) fell 4.20%. TMO reported earnings last Wednesday and highlighted a 62% jump in first-quarter profits. This was also TMO’s first quarterly report to include the $13.6 billion acquisition of Life Technologies Corp. TMO reported $1.36 earnings per share vs. a projected $1.40 per share, up from the $0.93 per share a year earlier. Revenue jumped 22% to $3.9 billion, beating analysts’ estimates of $3.79 billion. TMO is a HOLD.

Grifols, S.A. (GRFS) rose 5.16% over the past five trading days, stopping just short of its 50-day moving average (MA). GRFS is a HOLD for the moment.

Micron Technology Inc. (MU) gained 5.65% to hit a new 52-week high last week. MU continued to experience strong post-earnings gains and easily moved above the 50-day MA to become a BUY.

EOG Resources, Inc. (EOG) fell 3.82% for the week, on the heels of a new 52-week high last Thursday. With the energy sector as a whole coming up short when compared to the S&P 500’s recent big moves, EOG is in excellent position for even more future gains. EOG will report earnings on May 5, after markets close. EOG is a BUY.

Tata Motors Limited (TTM) closed the week flat. This position was the second of two new additions to your portfolio last week. I highlighted TTM earlier in the month but recommended against purchasing TTM until better market conditions were in place. With the markets stabilizing a bit, and TTM down from its recent 52-week high, the time is right to enter this position. TTM is a BUY.

Nicholas Vardy

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