Three International Food and Beverage Plays to Get Away from US Credit Concerns

With the United States suffering a credit crunch, people are suggesting that investors get out of financials and into consumer staples, and companies with international exposure such as Kraft (KFT) or Procter and Gamble (PG). While this is a good idea, another good play would be to play sectors which have a very low correlation to US Financials. Why not invest in international food and beverage companies which are more levered to the economy they serve?

Here are three interesting international food and beverage stocks:

1. Central European Distribution Corporation (CEDC):

CEDC is the largest vodka producer in Poland by value and produces the Absolwent, Zubrowka, Bols and Soplica brands, among others. CEDC currently exports Zubrowka to European and Asian markets. CEDC imports many of the world's leading brands to Poland, including brands such as Remy Martin, Metaxa, Jim Beam, Sauza Tequila, Grant's, E&J Gallo, Sutter Home, Torres, Penfolds and Concha y Toro wines, Corona, Foster's, and Guinness Stout beers and Evian.

CEDC is also benefitting from a strong Polish economy, growing at a good 6.4% rate in the 2nd quarter of 2007. They are even getting Russian exposure, as they recently announced their intent to acquire a significant majority interest in a Russian company which owns the number one premium vodka brand in Russia, Parliament Vodka.

This $1.65 Billion company has a Forward PE of 20.48, and a five year estimated growth rate of 17.5% for a reasonable PEG of 1.17. It is near its 52 week high and there are currently only five analysts covering the stock.


2. Wimm Bill Dann (WBD):

Wimm Bill Dann is a $4.14 Billion Russian Food company offering a range of branded dairy, juice, water and baby food products. It has a forward PE of 20.35, a five year estimated growth rate of 35% for an inexpensive PEG of 0.58 (less than 1 is very cheap).

According to the company, Wimm Bill Dann produces its dairy products in the region where they are consumed. Also, from 1999 to 2003, Wimm Bill Dann had modernized. Prior to 1999, Russia suffered a deficit in raw milk, particularly a deficit in high quality raw milk. The number of head of cattle had diminished while productivity had not grown quickly enough. So Wimm Bill Dann invested in modern Swedish milking and refrigeration equipment and later, invested in harvesting equipment. This modernization program reaped benefits greatly increasing the percentage of high quality milk.

Wimm Bill Dann also has a 20% share in the Russian Juice Market (as of 2005).

TheStreet.com's Ratings consistently rates Wimm-Bill-Dann as one of their top five fast growth stocks.


3. Ambev (ABV):

Ambev is a $43 Billion Brazilian company that produces, distributes and sells beer, carbonated soft drinks and other non-alcoholic and non-carbonated products principally in Latin America. It also bottles, sells and distributes PepsiCo International products outside of the United States. The company has a forward PE of 20.76, a five year estimated growth rate of 13%, for a reasonable PEG of 1.59. The company even has a forward yield of 1%, and only three analysts cover the stock. Institutional ownership of this stock is only 19.80%.

Ambev has an Operating Margin of 29.25%, greater than competitors such as Formento Economico Mexicano (FMX) of 13.2%.

The company Quilmes Industrial (LQU) is a subsidiary of Ambev.


Conclusion

After reading and studying the three companies, I hope that you feel like you are in another world, far away from any United States credit problem. Central European Distribution (CEDC), Wimm-Bill-Dann (WBD), and Ambev (ABV) are three great ways to get away from it all.

Emerging Market Wireless Telecom Boom

The stock prices of wireless handset makers such as Research In Motion (RIMM) and Apple (AAPL) have been soaring. Buying the handset makers would be one way to profit from the Wireless boom, but there are many other overlooked and profitable ways.

Investing in Emerging Market Wireless Telecom Companies is a great way to enjoy the growth.

Emerging market wireless telecom companies are enjoying better growth than Developed Nations. According to the CTIA - The Wireless Association -, the United States as of late 2006 has a 72% wireless penetration rate. Many countries such as Italy, Sweden and the UK already have over 100% wireless penetration (multiple phones per person). It becomes more difficult to grow revenue in these countries.

In Emerging Markets, however, wireless penetration is much less, allowing more opportunities to grow revenue. As an example, in Latin America and South America, wireless penetration is expected to be 60% by 2010.

In Emerging markets, landline phones can be very limited and wireless can be the only way to make calls. Wireless telecommunication is becoming more important worldwide and people in emerging markets such as India are more willing to use the technology including Short Message Service (SMS, or Texting). Mobile phones are easily becoming part of the worldwide culture.

Here are four good ways to profit from the boom in emerging market wireless telecom:

1. America Movil (AMX):

America Movil is the dominant player in the Mexico and the Latin America and South America region. This $107 Billion company has a forward PE of 14.48 and a five year estimated growth rate of 32.1% for a very cheap PEG of 0.45 (less than 1 is very cheap!) According to a research report from Research and Markets, key drivers are low wireless penetration in Latin America, Increasing Demand of Mobile Internet, and Revenue Growth from Mobile Content.

America Movil is also the company that made Carlos Slim Helu the richest man in the world. Jim Cramer has said that we should "start copying the best guy with the best stock ... Carlos Slim."

2. NII Holdings (NIHD):

NIHD is a spinoff from Nextel and serves the Latin America region including countries such as Mexico, Brazil, Argentina, Peru and Chile. This $13.8 Billion company has a forward PE of 22.48, and a five year estimated growth rate of 40% for an inexpensive PEG of 0.56. Together with America Movil, these two companies offer great growth in the Latin American and South American Wireless market.

3. Vimpel Communications (VIP):

Vimpel Communications services Russia and countries in the Commonwealth of Independent States (CIS), countries that were part of the former Soviet Union. This $21 Billion company has a forward PE of 13.40, and a five year estimated growth rate of 24.1% for a low PEG of 0.56. Major competitors include MTS, and MegaFon, but since VIP is an American Depository Receipt (ADR), VIP remains the easiest Russian Wireless Telecom company to invest in from the United States.

Wireless penetration rates in Russia and Ukraine are a little over 100% but wireless penetration is much lower in Kazakhstan (51.7%), Tajikistan (11.9%), Uzbekistan (10.4%), and Armenia (37%).

Vimpel has a 31.7% market share in Russia, 49.5% in Kazakhstan, 3.8% in Ukraine, 8.9% in Tajikistan, 28.2% in Uzbekistan and 38.2% in Armenia.

4. China Mobile (CHL):

China Mobile is now the world's largest mobile operator with its subscriber base exceeding 300 million. This $233 Billion company's five year expected growth rate is 23.85%. With wireless penetration in China at around 30%, there is still a lot of growth.

Julie Pohlig, senior analyst at Vital Wave Consulting, offers interesting insight into Chinese subscribers. Chinese subscribers rely on pre-paid phone cards and pay 80% less than Americans for mobile phone service but their monthly investment per month represents 7% or more of their salary. This says "a lot about the perceived importance of telecommunications in that society," Julie Pohlig points out.


There are many other good emerging market telecom companies out there, but the four companies above represent good wireless telecom companies that cover a good portion of the emerging markets.

S&P 500 Possible Scenario (July 27, 2007)

As of Friday, July 27, the market and the S&P 500 have been undergoing a correction. The S&P 500 is now at 1458 and many technical indicators are flashing very oversold conditions:

1. Only 18% of S&P 500 stocks are above their 50 day moving average.


2. Only 47.8% of S&P 500 stocks are above their 200 day moving average.


3. The 10 day Moving Average of the Put-Call Ratio is at 1.12 (above 1.0)


4. The ratio of new highs to new lows on the S&P 500 is only 7.4%

The closest support level is the 200 day moving average at 1448, then horizontal resistance of 1440. The 200 day moving average would be a reasonable bottom target (since we are in very oversold conditions), and this target could be reached intraday. The $SPX should have a bounce (using Fibonacci Retracements) to the 38.2% or 50% retracement which would be somewhere between 1489 and 1501 on the $SPX.

Usually, V shaped bottoms don't last. I expect the $SPX to re-test the previous lows (expected to be at the 200 day MA of 1448).

During the re-test, we can then determine whether the $SPX will continue another leg down (for the next leg in a larger ABC Correction), or, the $SPX may form a double bottom.

We can then come up with a new scenario at that point.

For Today's Chart with Info Above

Trading Advice if Above Scenario is True:

If the above scenario works out, a trader could:

1. Cover all shorts now.


2. Get ready to go long on the S&P 500. This could occur very quickly and occur intraday.


3. Be prepared to play the bounce to 1489 to 1501 then sell the long position, and go short on the S&P 500.


4. Cover the short once the $SPX re-tests the previous lows.

If one is more of an investor with a longer time frame (multiple years):

1. Cover all shorts now.


2. Create a wish list of stocks to go long, and get ready to buy in the very near future (even on Monday!)


3. Start a 25% position on selected stocks.


4. After the bounce, look for the re-test. If the $SPX re-test is successful, you can add another 25-50% position on your favored stocks. But watch out if there is another leg down! The $SPX could fail on the re-test.

Jim Cramer's thoughts on Bottom

Jim Cramer in this article, talks about the bottom. One of his indicators is a proprietary S&P 500 indicator that is at -6.5, an extreme reading which has only occurred twice in seven years. He says that the bottom usually occurs within 48 hours.

But even if we do get a bounce, beware of the re-test back to the previous lows. We'll determine what to do after the re-test of the lows.

Otherwise, watch out below. Next support levels on $SPX are 1420, 1410, 1380.

WARNING: You can lose money in the stock market. Please do your due diligence.

S&P 500 Bottom Indicator: High-Low Index Ratio

$RHSPX is the S&P 500 High-Low Index Ratio. This is calculated by taking the S&P 500 New Highs divided by the S&P 500 New Lows. We use this as a contrarian indicator. When the $RHSPX spikes below 20% to some very low number under 10%, this usually means that the $SPX is near or at a bottom.

As of July 27, 2007, the $RHSPX is at 7.4%. While the $RHSPX can continue to go even lower, we are probably near or at a bottom on the $SPX.

Shouldn't be Used By Itself

These indicators should not be used by itself. Combined with other technical analysis such as resistance and support level analysis, these indicators can be very useful tools.

Other Bottom Indicators

1. The $SPXA50R and $SPXA200R indicators.
   
2. Put-Call Ratio
   
3. $RHSPX indicator.
   

Today's Chart with the information above.

S&P 500 Bottom Indicators including Put-Call Ratio

Yes, there is a lot of information in the chart above.

Let us start with the latest S&P bottom indicator, the Put-Call Ratio or $CPC (CBOE Options Total Put/Call Ratio.) A "Put" is an option where the buyer is expecting the stock to go down. A "Call" is an option where the buyer is expecting the stock to go up. So the Put-Call Ratio is the ratio of the total volume of Put Options to the total volume of Call Options. If the Put/Call Ratio is above 1 (for example), this means that there is fear in the market and people want protect their portfolios with Put Options. This is used as a contrarian indicator, meaning when the Put/Call ratio is high, we may have a bottom. The $CPC is the very volatile red line in the middle of the chart above.

However, since the $CPC is very volatile, we want to smooth out the ups and downs. So we use the 10 day moving average of the $CPC. It is the blue line in the middle of the red $CPC line. The general rule is that if the 10 day moving average of the $CPC stays above 1.0, we are near or at a bottom.

Currently, the 10 day moving average of $CPC is at 1.12, suggesting that we are at or near a bottom.

The Black Line in middle of chart

The uptrending black line in the middle of the chart is the S&P 500 index itself, the $SPX.

The top and bottom windows in Chart

The Top and Bottom windows represent the S&P 500 Stocks that are above the 50 day moving average, and the S&P 500 Stocks that are above the 200 day moving average, respectively. I've written about them in the past.

What the Three Bottom Indicators are saying:

1. 10 Day Moving Average of $CPC: 1.12, which is above 1.0. We are at or near a bottom.
   
2. Ratio of S&P 500 Stocks above their 50 day moving average: 18%, which is way below 30% and below 20%. We are at or near a bottom.
   
3. Ratio of S&P 500 Stocks above their 200 day moving average: 47.8%, which is below the 50% level. We are at or near a bottom.
   

Must be used in conjunction with other analysis

We shouldn't use these indicators by itself. This analysis should be used with other aspects of technical analysis such as support and resistance level analysis.

Here's yesterday's Support and Resistance Levels. The only difference is that today, the S&P 500 closed down at 1458, slightly below the 1460-1464 resistance. Next support level is the 200 day moving average at around 1447. There's a possibility that we'll test the 200 day moving average and form a bottom there. The three bottom indicators mentioned above also suggest that we are near the bottom. If we bottom there, then we would have finished an ABC Correction (possible scenario predicted in early June 2007).


Today's Chart with all the info above

Current Support Levels on S&P 500 (July 26, 2007)

The S&P 500 ($SPX) seems to be lining up perfectly with support and resistance. $SPX is now at 1482. There's resistance at around 1486. Support levels appears to be at 1464 (today, the $SPX nicely bounced off this support), and if it gets worse, we have the 200 day moving average at around 1447.

Don't be surprised if $SPX re-tests 1464 and decides which direction it really wants to take.

To look at the charts in another way, see this article on the $SPXA50R and $SPXA200R bottom technical indicators.

If we do break down below 1464, we may yet have a possible ABC Correction (mentioned in June 2007).

Are we almost at bottom on S&P 500?

The S&P 500 Index (500 of America's most influential and largest companies) $SPX fell 2.33% to 1482.66. Are we near the bottom?

Based on the $SPXA200R and $SPXA50R indicators, we are nearing the bottom.

The $SPXA50R refers to the ratio of stocks in the S&P 500 that are above the 50 day moving average. We use this indicator as a contrarian indicator. When the $SPXA50R goes around the 20% area (meaning 20% of stocks in the S&P 500 are above the 50 day moving average), we are near or at the bottom. Right now, the $SPXA50R are almost at 20%.

The $SPXA200R refers to the ratio of stocks in the S&P 500 that are above the 200 day moving average. Again, we use this indicator as a contrarian indicator. When the $SPXA200R goes below 50, and around the 45% area, we are near or at the bottom. Right now, the $SPXA200R is slightly above 50%. A little bit more, and we should be at the bottom.

Check on Today's Status/Chart

To update yourself on the $SPXA50R and $SPXA200R, use this chart.

Current Support Levels

To help put the $SPXA50R and $SPXA200R indicators in perspective, take a look at the current support and resistance in the S&P 500.