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The Money Map Advantage
Thursday, December 8, 2005
By Horacio Marquez
#21
** Going Long on Iron Ore
Last Friday, we took 224% profits on our Petrobras December calls. Although I believe there is very significant upside potential left, the stock is bumping into its $73.38 September high and will have to do some work here in order to leap over it. Long-and short-term fundamentals continue intact with Brazil running on all cylinders, as they accelerate the economy into the 2006 election.
Brazil has plenty of room to lower local rates, since their monetary and fiscal policies have been very tight, inflation is well in check and dropping, and the Brazilian currency keeps appreciating on the back of ever-increasing exports. So, keep the stock and look to buy more if it drops below $69.
Meanwhile, our Austrian ETF-iShares MSCI Austria (AMEX: EWO) keeps gaining traction, and has reached the September high. Tenaris (NYSE: TS), currently above $125 has taken off from its October lows, as predicted, and is heading toward the September highs of $142. A heavily oversold situation and the cold spell in the U.S. and Europe has helped here.
The rest of our recommendations – Cerner (Nasdaq: CERN), iShares MSCI Japan (AMEX: EWJ) and Mitsubishi UFJ Financial (NYSE: MTU) – are taking a breather from their recent runs and are ready to rally into the end of December.
Next week, the Federal Reserve meets again and should give us another 0.25% increase in the Fed Funds rate. The surprise, however, is that it could change the language to reflect the fact that they are nearer to the end of its tightening cycle. This would be justified since inflation momentum, especially unit labor costs, has dropped, and productivity has gained dramatically. If the Fed indeed gives some indication that it is nearer to that elusive neutral rate, then the market takes off. Wall Street is playing this possibility through options on the futures contracts on Fed Funds.
How do we take advantage of this possibility?
A pause in Fed tightening should send commodities and mining companies to new highs. Demand for iron ore continues to outstrip supply. This was confirmed in the last couple of days in the webcast by CVRD (NYSE:RIO), which I own, and by the president of BHP Billiton from Australia. Both affirmed that prices are firming up. In fact, in late December, they are set to negotiate the new higher prices in Asia, with Japan and China.
We should position ourselves ahead of this. While CVRD has sold off most recently on no news, profit-taking and new shorts from the recent highs, I like BHP Billiton better, as it is a more diversified mining company and produces not only iron ore, but also copper, nickel, diamonds, titanium, aluminum and last but not least, uranium. I am very bullish on uranium going forward as the West’s solution to growing oil scarcity. Minerals in general should continue on the upside in next year’s continued global expansion and renewed dollar weakness.
Action to take:
Buy BHP Billiton (NYSE: BHP) at market. Current price is $32.60. More aggressive investors should consider the January $35 calls (BHP AG) at no more than $0.45.
Enjoy and profit,
Horacio Marquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com , or contact Pillar One Advisor Greg Galloway at 800.438.3040 or 407.667.4729.
Stock
Current Price
Comments
BHP Billiton (NYSE: BHP)
New
Buy at market.
Banco Bradesco (NYSE: BBD)
$31.58
Buy. Sell stop is $21.50. Stock recently split 2-for-1.
Petrobras (NYSE: PBR)
$71.67
Buy. Sell stop is $55.
Mitsubishi UFJ Finan. (NYSE: MTU)
$13.10
Buy. Sell stop is $10.20.
iShares Japan Fund (AMEX: EWJ)
$12.68
Buy. Sell stop is $10.
Cerner Corp. (Nasdaq: CERN)
$94.60
Buy. Sell stop is $69.00.
Tenaris (NYSE: TS)
$128.04
Buy. Sell stop is $95.
MSCI Austria Fund (AMEX: EWO)
$27.46
Buy. Sell stop is $20.90.
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