Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
Vad’s Global View
12/11/2008 11:59 am EST
Vad Yazvinski, chief investment officer at Jordan Capital and current participant in the MSN Strategy Lab, discusses his favorite strategies and stocks from around the world.
Q. Do you think any global markets have bottomed?
A. It is quite possible we will retest the lows from November at some point during the next six months. However, I won't be surprised if a year from now, the Standard & Poor’s 500 is trading at around the same level of 850+/- 75 points. This in turn means that many of the buy and hold-investors could once again be left with a disappointing outcome.
Q. Your portfolio for the MSN Strategy Lab includes several telecom companies around the world. Why did you pick them?
A. Mobile telecoms all around the world have been pummeled without really giving any consideration to the fact that cell phones in the emerging countries are no longer a discretionary item—they are somewhat of a consumer staple and thus are not prone to significant declines.
Enterprise values of two to three times earnings before interest, taxes, depreciation, and amortization (EBITDA) for Mobile Telesystems (NYSE: MBT), Turkcell Ilet New (NYSE: TKC), NII Holdings (Nasdaq: NIHD), and Millicom International Cellular (Nasdaq: MICC) are simply ridiculous. Even Israeli cell phone players like Partner Communications (Nasdaq: PTNR) and Cellcom Israel (NYSE: CEL)—some of the most stable and well-managed companies in the telecom space—are selling at four to five times EBITDA.
I also believe that some large global players like Vodafone (NYSE: VOD) and China Mobile (NYSE: CHL) are going to become very active on the acquisition front in the very near future, which should lead to significant multiple expansion. The only potential issue with some of the players is that a large portion of their debt is denominated in US dollars with revenues in local currencies, which could lead to potential short-term currency hits. But none should have any real problems refinancing/paying down the debt given the strength of cash flows.
Q. You have recently held some global bank stocks. Do you still like some financials?
A. Recently I turned bullish on the more stable money center bank names like HSBC Holdings (NYSE: HBC), Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC), and JP Morgan Chase (NYSE: JPM) with one caveat: I am not yet ready to buy their common stock but rather for now focus on their preferred stock, with most of my purchases yielding double-digit returns.
Many investors tend to forget that the government’s Troubled Assets Relief Program (TARP) has a very interesting component. It was made in the form of preferred stock pari passu with the existing preferreds, which means that banks have to stop paying the government before they stop paying me. I am betting that simply won't happen any time soon.
Q. You currently include some ETF shorts in your portfolio. Do you think the average investor should always hold short positions as a hedge?
A. The primary goal of a rational short-selling strategy is simply risk mitigation or hedging. The average investor would be prudent to allocate a healthy portion of his portfolio—usually no more than 30-40% of his long holdings—to a well-diversified group of small short positions.
Q. As a native of Belarus, formerly part of the Soviet Union, would you comment on the 70% correction in the Russian stock market and the flight by foreign investors?
A. Last October, I actually predicted the upcoming collapse—a good call at the time—but with Russian stocks now universally hated and everyone predicting the doom-and-gloom outcome for the Red Empire, I have started nibbling at selected opportunities like two of my telecom plays: Vimpel Communications (NYSE: VIP) and MBT.
With oil prices at $40 or so a barrel, the Russian economy is certainly in for a rough ride. A ruble devaluation at this point is virtually inevitable. However, this devaluation will actually make Russian companies outside the natural resources sector more competitive in the long run.
Q. What sectors and/or individual investments do you think have the most potential over the next 12 months?
A. Surprisingly enough, I am personally a lot more bullish on the corporate bonds/preferred stocks side vs. common stocks. Yields on the selected investment grade bonds and financial preferred stocks are at healthy double digits. Fixed income yields are sending very conflicting signals—either most common stocks are too expensive or corporate bonds are too cheap. For now, I am sticking with the latter theory, holding a very limited number of individual stocks concentrated in the emerging telecom names, and with almost half of my portfolio in cash since August. While I foresee my common stock-bearish mood changing sometime during the next six to nine months, I also believe that things could very well get worse before they get better.
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