I bet you want to know the answer to this question: If global stock markets do continue to bounce over the next 74 days until the end of the year, which stocks and ETFs would benefit?
We already have a lot of the positions that should benefit: Markets in southeast Asia, Asia Minor and South America, as well as gold and gold miners. However there could be a group of companies that start to gain ground: Ones that have been weak until now, and have rebound potential.
Michael Belkin, an influential equity and credit researcher based on Bainbridge Island who has made countless great calls over the years — including a famous forecast of the collapse of the Japanese markets back at the end of 1989 when they were at their peak — says he says it is time to go back to Investing 101 and buy low.
His top picks include “frontier markets” such as Egypt, Vietnam, the Persian Gulf and Africa. “Since most managers haven’t figured out that these markets exist or how to invest in them, opportunities still exist for intrepid early adopters,” he said in a report late last week. “This asset class will probably get glued into emerging markets by capital flows over the next several years. It hasn’t happened yet.
The main fund covering this area is�Guggenheim Frontier Markets (FRN), though it is dominated by Chilean and Colombian stocks, which we already own. Going farther afield is Market Vectors Africa (AFK). I don’t like this fund, however, because of its very low trading volume and the fact that it largely just tracks the price of crude oil, since energy exploration and production is the largest source of wealth in emerging Africa.
MV Egypt (EGPT) is kind of interesting, but it’s mostly a cotton and finance story and the fund is again very lightly traded.�MV Vietnam (V NM) is more compelling as it is an emerging manufacturing hub as factory managers keep seeking cheaper labor for the sort of low-level finished goods that China first cut its teeth on.
Over on the Continent , the two main funds focused on this idea�would be SPDR S&P Emerging Europe (GUR), which has decent volume, and�iShares Emerging Eastern Europe (ESR), which has very light volume. There’s also a single country fund that looks very attractive from a valuation and business momentum perspective:�Market Vector Poland (PLND). The Polish economy is one of the most robust in Europe, with stronger than expected banking and manufacturing sectors.
Most commodities have been on a tear, with grains up +40% and gold up a ton in recent months. But one commodity group that has almost been forgotten, and is still cheap, is the most fundamental: energy. Belkin says his model has a fresh upward forecast for the prices of all carbon products — crude oil, gasoline and heating oil — as well as ethanol and sugar. A rotation to this area is likely.
The same could be said for energy stocks, which have taken a backseat in the recent rally. Belkin’s model favors higher-beta medium- and small-sized energy companies in the United States and Europe. Large-cap energy producers of all stripes are in the fund�SPDR Energy Select (XLE), while smaller energy companies are in�SPDR Oil Services (XES) and�SPDR Exploration (XOP).
Just smaller companies are in the new, lightly traded�PowerShares S&P Smallcap Energy (XLES). And a way to mix energy and emerging markets is through�MarketVectors Russia (RSX), which is largely driven by that country’s large energy companies.
Other buy-low sectors for Belkin with outperform prospects are in tech, heavy industry and discretionary or retail. Everyone knows that Apple! (NASDAQ: AAPL) and now Google (NASDAQ: GOOG) are up, but much of tech has been left behind. Some top rally prospects well below their all-time highs include�Western Digital (NYSE: WDC),�Alcatel Lucent (NYSE: ALU),�Ciena (NASDAQ: CIEN),�Micron (NASDAQ: MU),�LSI (NYSE: LSI) and�Applied Materials (NASDAQ: AMAT).
Industrial stocks that his model considers undervalued are�Jacobs Engineering (NYSE: JEC),�Masco (NYSE: MAS),�Textron (NYSE: TXT) and�Mantiwoc (NYSE: MTW). The fundamental outlook for these companies is not great, but as Belkin notes, “that is how value stocks always look” before they turn higher at inflection points like this month promises to be. The overall view for a recovery rally is for a bottom-fishing expedition to emerge in depressed stocks and sectors.
For more ideas along these lines, please check out my daily Trader’s Advantage and Strategic Advantage newsletters.
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