Vardy: A New View

01/13/2006 12:00 am EST

Focus:

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

I treat new newsletters with some skepticism, but I have no doubts about the future success of the Global Bull Market Alert. Editor Nick Vardy has created a service destined to be a "must read" for sophisticated global investors and traders. Here’ are his top picks for 2006.

"Having worked on the public offerings of formerly government-owned banks in Central Europe in the mid 1990s, I am convinced that banking turnarounds are one of the strongest ‘top down’ investment themes in global bull market investing. My top pick for 2006 is Woori Finance Holdings Co. (WF NYSE), a play on Korean banking. While the South Korean market has been up about 50% over the past 12 months, many banking shares have doubled in value.

"Since recovering from the Asian financial crisis of the late '90s, South Korea's banks have been on a tear. The country's financial sectoronce in the firm grip of the industrial conglomerates or chaebo have been transformed into fast growth, commercially-oriented, money-making machines. Loans to the shady chaebo have plummeted to less than 5%, while loans to consumers have soared to 56% in 2005. The average ratio of non-performing loans stands at 1.6%, down from 12.9% in 1999. As a result, South Korea's banking sector is expected to earn $9.5 billion in 2005, topping 2004's record profits of $8.4 billion.

"Cobbled together from two troubled banks in 2001, Woori Finance today includes the second-largest commercial bank in Korea in terms of total assets (including loans), deposits, and the number of branches. It also boasts two Ivy League economics PhDs (Harvard and Penn) on its Board of Directors. During the first stage of its turnaround, Woori focused on making employees and clients accept the very idea of credit assessment. But it is really the dynamic growth of the South Korean economy that will secure future profits.

"Woori's goal is to become nothing less than a one-stop financial supermarket, offering everything from credit cards and brokerage services to asset management and insurance. And with revenue growth exceeding 90% in the last quarter over the same quarter the previous yearand a p/e of less than 9 Woori's stock is inexpensive compared with its other publicly traded competitors. Buy Woori at market and place a stop at $51.00."

"My favorite speculative pick for the coming year is Yukos (YUKOY Other OTC), the quintessential Russian ‘hate stock’ that has quietly quadrupled in the past four months. To most international investors, the saga of oil giant Yukos symbolizes what's wrong with Russia. In April of 2005, the international press was full of Putin's crackdown on capitalism in Russia. Splashed across the front pages of newspapers around the globe were pictures of Mikhail Khordokovsky caged in a Russian courtroom. The sham trial of Russia's wealthiest man and his company Yukos for tax evasion meant that the free market was dead in Russia. At the time, investors were fleeing the country.

"Nevertheless, despite the dire warnings in the press, the Russian market turned around and has been heading north ever since. Having risen from $1.95 to $8.30, Yukos was probably one of the best performing stocks in the world in 2005. Clearly, Yukos is no longer the company it once was, and this must be considered a highly speculative investment. But the turnaround in Yukos' stock price thus farand what's yet to come in 2006 confirms the Rothschild's maxim: Invest when there is blood on the streets.’"

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