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Buying Opportunities in Emerging Markets and Financials


Perhaps the most widely discussed theme around is whether financials are ready to regain their leadership.

As 2007 becomes a memory we have to focus on the challenges and, yes, opportunities for 2008. The markets didn't give us a very friendly greeting yesterday and frankly there simply wasn't much good news to be had. Starting off the year with a weak ISM number and oil hitting the $100 mark, investors were hard pressed to find a reason to buy.

Well, I started this off talking about challenges and opportunities. The challenges are self-evident so let's talk about some opportunities.

The prospects for gold and oil have received non-stop attention so let's discuss another theme. For the past several years we have had a focus on the building of infrastructure and the emerging market industrial complex that was supplying the voracious appetite of the American consumer. As the US economy slows we will see a shift to the importance of the emerging market consumer as they strive to improve their standard of living.

The strong performances in Vimplecom (VIP), a leading cellular provider, and Wimm Bill Dann Foods (WBD) selling everything from dairy to baby foods support this theme. Both cater to a different segment of the Russian consumer and offer enormous growth with multiples to match. Despite the high multiples in these stocks they both have PEG ratios (PE/Growth Rate) well below 1. These stocks frequently make 5% plus moves in both directions so size positions accordingly. If VIP is too rich for you look at Turkcell (TKC) with a 30% growth rate and trading with a 14 PE. It's up about 50% since I mentioned it in August '07 but is still cheap.

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Timing isn't everything but its importance can't be underestimated. Opportunity cost is always a consideration when making your investment decisions. Being too early on an investment theme can be very costly and dilute your returns over the course of time.

Perhaps the most widely discussed theme in the press, on TV and at cocktail parties is whether financials, after an abysmal year, are ready to regain their leadership. This myopic focus makes me wonder whether or not this can be classified as a contrarian play. I can't turn on the TV without seeing another pundit profess that now is the time. We'll see. Now that the weight of end of year tax selling has been lifted financials and homebuilders may see an early year bounce. Time will tell if the "cat is dead or alive." Investor capitulation, while important, is not enough on its own to sustain performance. We all know that at some point in time these sectors will have their day in the sun. Some investors talk about patience. I must admit I have very little. Let's try focusing on stocks that can make money today.

Surprisingly within this sector my screen and models have picked up some stocks that I feel have upside right now. Some are already in my portfolio and others will be purchased shortly. They just aren't the names you hear day after day on TV. If you must own financial stocks right now take a look at Ameritrade (AMTD). Even in a bear market trade volumes are likely to pick up and AMTD is a clear beneficiary. It offer investors an excellent trading platform and is becoming more than just an online broker. It has a lot of potential upside in the RIA (Registered Investment Advisor Business) and is moving to the asset gathering model. Estimates have been steadily rising since its last EPS report. The big discount to Charles Schwab (SCHW) and the troubles at E*Trade (ETFC) can only help.

No positions in stocks mentioned.
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