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Kerri Shannon

Emerging-Market Stocks Hit Historic Lows: Don't Miss Your Chance to Load Up

Thanks to the wild market swings of the past month, emerging-market stocks are trading at historic lows. That means investors have a rare opportunity to load up on stocks at valuations they wouldn't see under normal circumstances.

If we were talking about a sell-off that was based on fundamentals, that might be a warning sign. But what we've seen instead is the irrational dumping of companies that actually are poised to see their profits grow.

Take a look.

The stock-market sell-off that's pushed the Dow Jones Industrial Average down 9% in the past month has rubbed off on emerging-market stocks. The MSCI Emerging Markets Index, which tracks market performance in developing economies, has slipped 12% this month – its worst slide in three years. After falling as low as 990, it's now trading around 1,010, 28% below its 20-year average.

This puts emerging-market stocks near record-low valuations, and with their high-growth outlook it's time for investors to scoop them up at bargain prices.

"We've been pecking away at things as they decline," billionaire investor Wilbur Ross, chief executive officer of WL Ross & Co., told Bloomberg Television. There's "plenty that's attractive in the emerging markets. Buying stocks at today's prices over a couple of years' time period will prove to be a uniquely rewarding experience."

Misleading Valuations

Current emerging-market valuations are at their lowest level since March 2009, but companies are worth much more than share prices reflect. The latest prices imply these companies will lose about 20% of earnings over the next year, according to Morgan Stanley (NYSE: MS), when in reality they're poised for growth.

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How to Bank Triple-Digit Gains During a Stock-Market Sell-Off

Monday's stock-market sell-off was a frightening affair that sunk 94% of the stocks listed on the New York Stock Exchange (NYSE). Every single stock in the Standard & Poor's 500 Index fell, and the 635-point freefall experienced by the Dow Jones Industrial Average was its sixth-largest point drop ever.

But in the face of this bloodbath, subscribers to Shah Gilani's Capital Wave Forecast were treated to gains of 456%, 455%, 371%, and 197% on four of their holdings.

Just how did Gilani manage to engineer four triple-digit gains in the face of a near-market meltdown?

He predicted reversals in both the U.S. and Chinese financial markets, employed a "put" option strategy for insurance – and then watched as his predictions came true.

"If I'm going to buy insurance, I want the best insurance at this price," said Gilani, a retired hedge-fund manager who is also a respected expert on the global financial crisis. "Part of a good cost-structure analysis is timing, which is tough. So I polished my crystal ball and said: ‘If something bad were to happen, when would that be?' I decided August, and chose some lesser-expensive puts."

Gilani's plan paid off with these four winners:

  • A 455.56% gain from Goldman Sachs October 2011 $85 Puts (GS111022P00085000), bought June 3 for 45 cents and sold Aug. 9 for $2.50.
  • A 455.24% gain from SPY August 2011 $115 Puts (SPY110820P00115000), bought for $1.05 on June 10 and sold Aug. 8 for $5.83.
  • A 371.26% gain from FXI $40 August 2011 Puts (FXI110820P00040000), bought May 10 for 87 cents and sold Aug. 8 at $4.10.
  • And a 196.72% gain from QQQ August 2011 $50 Puts (QQQ110820P00050000), bought June 10 for 61 cents, and sold Aug. 8 for $1.81.

"The days of putting together a portfolio and sleeping on it are over," said Gilani. "You could wake up to its value cut in half. Vigilance is the order of the day."

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Investing Icons Weigh In On U.S. Credit Downgrade

The market's verdict on the Standard & Poor's (S&P) U.S. credit downgrade is in – and it isn't good.

In direct response to the U.S. credit downgrade, the Dow Jones Industrial Average plunged more than 631 points, or 5.52%, yesterday (Monday), after falling 6% last week.

No question, we're in the midst of a free-fall. And there's no doubt about the role Washington played in creating this dangerous situation. But U.S. policymakers aren't the only ones to blame.

Some of Wall Street's heaviest hitters, including Warren Buffett and Bill Miller, have zeroed in on S&P for perhaps being a little too overzealous in its approach.

"I don't get it. It doesn't make sense. In Omaha, the U.S. is still triple-A rated," Buffett told Fox Business Network. "And if there were a quadruple-A, I'd give it to the U.S."

Buffett and fellow S&P critics said the agency made a hasty move that scared investors and clobbered markets.

Buffett: "I Don't Get It"

Buffett said the U.S. debt downgrade would not deter him from investing in U.S. Treasuries.

"If anything, it may change my opinion on S&P," Buffett said.

Echoing Buffett's disbelief was Legg Mason Inc.'s (NYSE: LM) Chief Investment Officer Bill Miller.

Miller said S&P "rushed to judgment" and took a "precipitous, wrong and dangerous" action.

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Time to Profit, Not Panic, from the Stock-Market Sell-Off

Thursday's stock-market sell-off has injected investors with more fear and uncertainty – but this is not the time to panic.

The Dow Jones Industrial Average on Thursday fell 513 points, or 4.3%, and regained only 0.54% Friday to close at 11,444.61. The Standard & Poor's 500 Index fell 60.27 points, or 4.8%, Thursday and slipped another 0.06% Friday to close at 1,199.38.

But that may be just what the market needed.

"This market was badly in need of a sell-off, so what's happening now is long overdue," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

Not only was the stock-market sell-off bound to happen, it's going to create new profit opportunities that could offset the losses many investors absorbed during the correction.

"We may take some small losses, but we're not going to get killed," said Money Morning Contributing Editor Shah Gilani. "There are going to be life-changing opportunities for us in the very near future and the next 18 months. I'm talking seriously huge, massive opportunities."

Our financial experts have put together the following tips on surviving the market roller coaster ahead:

  • Focus on large-cap dividend stocks – and mind your protective stops.
  • Don't forget gold, silver, and oil.
  • And get ready to buy – the best companies, which still have strong earnings, will be going on sale.

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China Wastes No Time in U.S. Credit Rating Downgrade

While Standard & Poor's mulls over a U.S. credit rating downgrade, China's Dagong Global Credit Rating Co. wasted no time cutting its U.S. debt outlook, signaling Asia's lack of faith in the declining U.S. dollar.

Dagong yesterday (Wednesday) cut its U.S. credit rating to A from A+ with a "negative" outlook. The agency said the U.S. debt deal failed to correct the country's budget issues, and the $2.4 trillion debt-ceiling increase will further erode the country's ability to reduce debt in coming years.

Two U.S. credit rating agencies, Moody's Investors Service (NYSE: MCO) and Fitch Ratings Inc., affirmed the country's top-tier AAA credit rating Tuesday – although both did issue a "negative" outlook, meaning the country could face a downgrade in a year or two.

But China acted much more swiftly. The U.S. credit rating downgrade puts the country several notches below the agency's top rating, on the same creditworthiness level as Spain, Estonia and South Africa.

The move underscores how foreign lenders to the United States have become increasingly reluctant to maintain their current levels of exposure to U.S. bonds.

Foreign leaders like People's Bank of China Governor Zhou Xiaochuan and Russian Prime Minister Vladimir Putin have harshly criticized the United States for failing to control its finances.

Putin said Monday that the United States was "leeching on the world economy," and questioned the dollar's status as the world's reserve currency.

"They are living like parasites off the global economy and their monopoly of the U.S. dollar," said Putin. "If over there (in America) there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities … There should be other reserve currencies."

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