Banking On Brazil

Look back at the five- and ten-year charts of almost any "top three" bank in a fast-growth emerging economy and you’ll find several five and ten baggers. My top pick on this megatrend is Brazil’s Unibanco (UBB). Trading at a forward P/E of about 12.1, Unibanco is the cheapest among its U.S.-traded Brazilian rivals. Its Price Earnings to Growth (PEG) ratio of .92 means you’re getting a bargain based on Unibanco’s future projected growth.

Unibanco also trades in Brazil — the most overlooked, under appreciated and cheapest of the BRIC countries. Brazil has never had its economic house in better order. It’s paying off its debts. Inflation is at its lowest level in decades. And Brazil’s currency has appreciated by 65% against the U.S. dollar since the end of 2002, giving U.S. dollar investors a strong boost to their returns. And its stock market is one of the top global performers this year.

A word of warning, though. Brazil traditionally is one of the world’s most volatile markets. It sells off quickly (and steeply) during inevitable hiccups. But investors who have held on during the periods of volatility have been richly rewarded. So buy Unibanco (UBB) at market today, and place your initial stop at $108.00. For potentially bigger upside, buy the April $140 call options (UBBDH.X).

MARKET AND TRADING UPDATE

In last week’s Global Bull Market Alert, we were celebrating new highs in almost all of our holdings. Five trading days later, I know that some of you are nervous holders of stocks and options that have taken a beating during the past week.

As I noted to viewers on Fox Business News yesterday, I don’t think that last week’s sell off is going to tip the global financial system out of its orbit. There was little new information to cause the sell off in red-hot global markets. Property prices in Sarasota, Fla., have zero impact on China’s ravenous appetite for commodities.

So what to do? If you are a conservative trader, sit tight. If this were any other time of the year, we’d be taking profits more aggressively. But this is the time of year to step on the gas. A few weak days in October — one of the most ornery times of the year for stock markets — is not enough to break this Global Bull’s back.

If you are an aggressive trader — you may want to consider increasing your bets. Realize that after markets are down five straight days, as they were last week, odds are that the market is set for a sharp bounce. In global markets in particular, that means you can make big money in options in a short period of time. Our global shipping play DryShips, Inc. (DRYS) is particularly volatile play, and is worth buying on the dips.

The bottom line: All of our stock and options recommendations are buys. But please, only increase your positions if you are willing to endure the volatility.

PORTFOLIO UPDATE

POSCO (PKX) sold off sharply this past week on the back of the general sell-off and slightly disappointing earnings — even as the company expects a strong Q4 thanks to rising nickel prices.

One person who still buying Posco is Warren Buffett. In an e-mail interview, Buffett told Korea’s Maeil Business Newspaper: "The Korean stock market a few years ago was by far the most undervalued market in the world. Since then, there has been a huge advance in the Korean market and the won has appreciated against the dollar. Nevertheless, many Korean stocks still sell at more attractive prices than stocks in other major countries." In fact, Buffett will be making his first ever trip to China and Korea this week — shadowed by CNBC’s Squawk Box. All this should help turn sentiment for the stock and we expect a strong recovery in the stock. Currently, Buffett owns stocks of around 20 Korean firms.

To make room for this week’s pick, I am going to move Potash (POT) out of our trading portfolio and call it a long-term buy. We booked just over a 56% profit in the stock since we first bought it — as well as a couple of double-digit percentage gains in various Potash option plays during the past few months. If you have a longer-term investment horizon, definitely hold on to the stock, and place a 25% trailing stop.

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