Assessing the Losers

 | May 29, 2012 | 9:30 AM EDT  | Comments
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Stock quotes in this article:

GREK

,

ERUS

,

TAN

Global equity markets have found tough sledding during the month of May, with a steady string of decline having wiped out billions of dollars in wealth and eroded the relatively strong gains posted during the first few months of the year. While the wave of red that has washed over account statements is of course disappointing, it can also be a source of opportunity, and signal that it's the right time to be aggressive. Stocks are generally much cheaper now than they were four weeks ago, meaning plenty of opportunity exists for snapping up beaten-down securities that could pop back in coming sessions. Below, I'll run through a few of the biggest losers from the last four weeks and handicap the odds of a bounce-back in the short term:

iShares MSCI Russia Index Fund (ERUS)

Four-Week Return: Down 18%

Odds of Short-Term Recovery: Good

Russian stocks have tumbled in May as investors have generally fled from emerging markets amidst a surge in risk aversion. Sliding oil prices haven't helped matters for the energy-dependent Russian economy, and concerns about the political uncertainty have further eroded prices. While there's plenty of risk in Russia, there's a great opportunity as well. ERUS is now trading at a price-to-earnings multiple of only about 8x, which makes it dirt-cheap relative to just about every other major global market. Russian equities deserved to be dinged in the past few weeks given the numerous risk factors. But the selloff has gone too far, creating an opportunity to buy in at a steep discount and profit from a correction higher.

Global X Greece ETF (GREK)

Four-Week Return: Down 35%

Odds of Short-Term Recovery: Coin Toss

Greece has, not surprisingly, been battered and bruised during the month of May. More than one-third of the value of GREK has been eliminated in a matter of weeks, thanks primarily to a fresh wave of concerns over the country's future as a member of the eurozone.

The Greek economy is in some serious trouble. But the portfolio of GREK should, for the most part, be able to survive. This ETF consists of the largest and most stable companies in Greece, and many of them are still profitable and have sufficient cash reserves to survive a serious downturn. Similar to Russia, Greece deserved to see a decline in stock prices over the past few weeks. But, again, the losses we've seen have perhaps been a bit much -- Greece makes investors so nervous at present that there's a significant "fear discount" baked in. That creates an opportunity. If GREK is able to return to the level where it had been trading when the month started, a 50% profit could be recorded in a short period of time.

Guggenheim Solar ETF (TAN)

Four-Week Return: Down 22%

Odds of Short-Term Recovery: Don't Count On It

It takes more than just a recent string of poor performance to create a buying opportunity. Though TAN has been one of the worst performers in the ETF universe over the past few weeks, it's tough to see the recent slide as having been just a temporary move. The collapse of the eurozone also spells disaster for the solar industry, as it virtually guarantees the further reduction in already-scaled-back subsidies. Most companies in the solar power industry are losing money, and the emergence of natural gas as a viable source of energy has lessened the urgency and interest in solar power.

The solar-power industry is on a path toward bankruptcy, meaning that TAN is on a path towards $0. Don't mistake the recent plunge as a temporary development. This sector is a dog that is doomed to deliver dismal returns.

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