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Profiting in the Philippines
11/17/2006 12:00 am EST
International investor Nicholas Vardy is lengthening his reach with a foray into the Philippines. Noting the country's market resurgence, he finds an opportunity to buy a proxy for the entire market with a single issue.
"Saddled with a reputation for political violence and fiscal mismanagement, the Philippines is the chronic underachiever of otherwise booming Asia. And worse for investors, the country's stock market has been a perennial under performer compared with its sexier Asian counterparts. But in 2006, the Philippine stock market is sizzling, with share prices trading near their highest levels in nine years. The benchmark index has risen over 30% since the beginning of the year, making it one of the best performers in Asia. Indeed, global fund managers have raised their weightings in the Philippines to their highest levels since September 1999.
"And this week's Global Bull Market Alert pick, Philippine Long Distance (PHI NYSE), is the best way to profit from the Philippines' new found resurgence.
"The credit for this turnaround goes to President Gloria Galapagos Arroyo's measures to get the Philippines' economic act together. Prior to Arroyo's arrival on the scene, the country had developed a chronic dependence on foreign borrowing and a large budget deficit. But beginning in early 2005, Arroyo introduced measures that reigned in foreign borrowing, clamped down on spending, and increased sales taxes.
"The results have been impressive. The Philippines posted a budget surplus for the fifth straight month in September 2006. Moody's Investors Service took notice and revised the outlook of the Philippines' credit rating to stable from negative, nine months after Fitch Ratings and Standard & Poor's did the same.
"Another sign of increased confidence? The Philippine peso is strengthening against the US dollar day after day. This trend provides an additional tailwind to the returns enjoyed by US dollar-based investors.
"This week's pick, Philippine Long Distance, is the Goliath in the Philippine stock market, accounting for a large chunk of its entire market cap. Think of it as a proxy for a market that doesn't have an exchange traded fund. And with the company trading at a P/E of 11.5, you're buying it at a 30% discount to its counterpart in nearby Indonesia.
"So buy Philippine Long Distance at market today and place your stop at $44.75. For potentially even bigger profits, buy the March $55 options (PHICK.X). To make room for PHI, sell your shares in Brazilian airline manufacturer Embraer (ERJ NYSE) for a small gain. Otherwise, all eight positions in the Global Bull Market Alert portfolio are profitable."
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