Betting on a Market with Big Momentum

Nicholas Vardy

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

Last week was mixed for U.S. stock markets, with the Dow Jones up 0.43% and the S&P 500 down 0.14%. The NASDAQ dropped 1.26%, while the MCSI Emerging Markets Index ended the week flat.

Big gainers in your Bull Market Alert portfolio included EOG Resources, Inc. (EOG), which added 5.38%; Visa Inc. (V), which rose 3.13%; and India’s Tata Motors Limited (TTM), which gained 2.73%. Both EOG Resources, Inc. (EOG) and Tata Motors Limited (TTM) hit new 52-week highs.

You hit your stop in Micron Technology Inc. (MU) for a gain of 10.08%. You sold your remaining July $25 calls for a gain of 34.18%. You were also stopped out of your GasLog Ltd. (GLOG) stock for a 5% gain. Your remaining GLOG August $25 calls should have been sold at that time for a small gain.

Grifols, S.A. (GRFS) fell below its 50-day moving average and moved to a HOLD. With the stock pulling back, I am recommending that you sell your May $40 call options (GRFS140517C00040000) today at a loss, as they expire this coming Friday.

Your $52.50 options in AbbVie Inc. (ABBV) are also set to expire this Friday. This is a tough call, as the stock is in an uptrend, and you may be able to sell the option at a higher price before Friday. Hold on to the option for now, and keep an eye out for a Special Alert to optimize your exit before expiration on Friday.

With the U.S. stock market struggling to eke out gains in 2014, this week’s Bull Market Alert recommendation takes us into one of the strongest-performing stock markets in the world — the Philippines — through the iShares MSCI Philippines (EPHE) exchange-traded fund (ETF).

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Investors are excited about the Philippines for several reasons.

First, the country boasts surprisingly strong economic fundamentals. Gross domestic product (GDP) growth has been strong the past two years — 6.5% and 7.2% in 2012 and 2013, respectively. Government debt is low, at just 40.1% of GDP. The unemployment rate is at a twenty-year low of 6.5%. Business confidence is at five-year highs. The Philippines has now also surpassed India as the leading country for foreign call centers.

Second, Standard & Poor’s just issued a credit upgrade for the Philippines last week. S&P believes that current government reforms in structural, administrative, institutional and governance areas will endure. With the Philippines now rated BBB by S&P, it is now rated higher than the BBB- ratings sported by Brazil, India and Russia.

Third, the Philippine stock market has a lot of momentum, with EPHE up 17.28% just over the 90 days. My biggest concern is that with a price-to-earnings (P/E) ratio of 24.3, EPHE is more expensive than its Indonesian and Malaysian counterparts. That said, in my experience, once an emerging market gets going, it can chalk up surprisingly big gains, for a surprisingly long time.

So buy iShares MSCI Philippines (EPHE) at market today and place your stop at $33.00. There are no options on this one.

Portfolio Update

AbbVie Inc. (ABBV) added 2.11%. ABBV has been on fire lately as momentum continues to build on positive reports surrounding its future Hepatitis C treatment. Morgan Stanley upgraded its rating to “overweight,” based upon its belief that this new treatment will capture significant market share. ABBV is a BUY.

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Thermo Fisher Scientific, Inc. (TMO) rose 2.08%. TMO finally moved higher last week after reporting positive earnings and moving sideways for two weeks. Trade direction is beginning to break to the upside, and TMO appears ready to challenge its 50-day moving average (MA) in the coming weeks. TMO remains a HOLD.

Tata Motors Limited (TTM) gained 2.73% for the week. Tata Motors may not be a very familiar name in the United States, but this carmaker’s largest market is the more than one billion-plus folks in India, as well as in South America, in Africa and in Europe. TTM’s earnings per share jumped 163% just last quarter and sales rose 23%.  With the Indian market hitting new highs, TTM is a BUY.

EOG Resources, Inc. (EOG) added 5.38% last week, hitting a new all-time high. EOG reported earnings per share of $1.40 vs. estimates of $1.20 per share, up from $0.91 in Q1 of 2013. Revenue rose from $3.4 billion to $4.1 billion. EOG’s total oil and gas production also increased by 18%. EOG is a BUY.

Visa Inc. (V) gained another 3.13% as it continued to bounce after its recent earnings report. Visa has only experienced two minor down days in the last 10 days since my recommendation in late April. Visa’s recent “double bottom” chart pattern at the 200-day MA, coupled with a positive earnings report three weeks ago, marks an excellent entry point into this bet on the global growth in credit cards. V is a BUY.

Nicholas Vardy

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