• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Where to Find Value in a Seemingly Valueless World? Energy and Brazil

If you're looking for exposure outside the U.S., and to protect yourself from raging inflation on a global basis, here it is.
By JIM COLLINS
Jun 11, 2021 | 01:12 PM EDT
Stocks quotes in this article: TSLA, RH, GME, TWTR, TTT, XOM, PBR, LGO, CSAN, CEW, VALE

Mas que nada! I had Sergio Mendes running through my head last night as I set up a new reference portfolio for my firm. According to Wikipedia, mas que nada translates from Brazilian Portuguese as "no way" or "yeah, right" and those are two phrases I often use to describe valuations in today's U.S. stock market, especially of certain sectors namely tech and so-called "meme" stocks.

We are living in strange times for the equity markets. There is an inflationary urge seen in macro data - as shown from yesterday's 13-year high reading in the CPI - that has not been seen for many years. Yet, the U.S bond market chose to shrug that off yesterday. Short covering, I reckon, from a very crowded, "short UST" trade that worked so well in 1Q21.

But when people are paying ridiculous multiples for assets, I generally try to take the other side of their trades. Or to find different people to follow.

My new reference portfolio attempts to put into action those words. It is balanced 50/50 short and long. On the short side, I have shorted Tesla (TSLA) (already ExCap's largest short position in client accounts. I have mentioned my Tesla thesis in one or two RM columns, so I won't belabor it here), Restoration Hardware (RH) , GameStop (GME) and Twitter (TWTR) . So there are two incredibly overvalued tech stocks, and two stocks that have risen incredibly in 2021, seemingly for no reason other than strong short interest in 2020, so I will classify them as meme stocks.

My biggest short actually goes on the long side of the portfolio, ProShares UltraPro Short 20+ Year Treasury ETF  (TTT) . As I noted in yesterday's RM column the current movements in the bond market simply make no sense given the data - especially CPI - and I believe those trades will be unwound,

Where to find value in a seemingly valueless world? Energy and Brazil, hence my reference to Brazilian bossa nova legend Sergio Mendes and his energetic track in the lede to this column. In yesterday's column I mentioned Exxon Mobil (XOM) , and, much like my bear case on TSLA, I have mentioned XOM many times, so I won't belabor my bull case now. It's a must-own with oil at or near $70/barrel though. The other longs are Brazil-focused.

Why Brazil? My frequent trips there (I just returned yesterday to NYC from Sao Paulo) have convinced me that this country is about to experience a period of above-average economic growth. Brazil's COVID numbers aren't impressive yet, but the vaccination campaign has accelerated, and I believe the pandemic is past its peak even in the middle of winter there. But Brazil's economy, other than tourism, is most dependent on people making "stuff" and buying the raw materials to make that stuff from Brazil. That business is booming now.

It's not just oil, either. Prices for commodities across the spectrum are jumping now as COVID-related supply shocks are just beginning to abate and the inflationary pressures brought by the world's central banks are making prices for those raw materials skyrocket.

In my reference portfolio I added Petrobras (PBR) , Largo Resources (LGO) , and Cosan (CSAN) for exposure to three very different raw materials. Petrobras' product is obvious, and its offshore production is incredibly valuable (and easy to ship to China). Cosan offers exposure to Brazil's sugar, ethanol and biofuels industries while also owning the largest natural gas company in Brazil, Comgas, as well as interests in lubricants and railway transportation networks. Finally, for the future-focused folks out there, I added Largo Resources. Largo recently uplisted to Nasdaq from Toronto's TSX. Largo offers a unique mix of technology and resources. Largo produces Vanadium Redox Flow batteries (VRFB,) a tech that is far superior to Tesla's lithium-ion technology for stationary storage, in my opinion. Largo also owns a mine in Brazil that produces the vanadium itself. That's an attractive vertical integration.

And those are my longs. I felt the need to short Brazil's currency, the real, to minimize my exposure there, as all these stocks are ADRs or native U.S. listings. Unfortunately WisdomTree recently discontinued its Brazilian Real ETF, so I was left with a broader WisdomTree short emerging markets currency ETF (CEW) as my protection. When investing in emerging markets, always protect your currency exposure.

That's my portfolio. With a fully balanced long-short mix, it is up about 1% in its first day of existence. As always, there are portfolio management decisions that needed to be made. I should say that I really, really like the business positioning of Brazilian metals giant Vale (VALE) here, as well. But you can't own everything, just as, sadly, I can't short everything that is overvalued.

If you are looking for exposure outside the U.S. and to protect yourself from raging inflation on a global basis (especially in the U.S.), I believe this portfolio is a strong selection. 

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins' firm had positions in all the securities mentioned.

TAGS: Economic Data | Economy | ETFs | Investing | Markets | Stocks | Trading | Energy | South America

More from Investing

If You Buy Now in This Bear-Bull Battle, You May Be Paying Later

Bob Lang
Jun 27, 2022 1:00 PM EDT

You really want to snag a bargain -- and bank a win -- right now. Here's a better strategy.

Should You Buy Micron Technology Ahead of Earnings?

Bruce Kamich
Jun 27, 2022 12:20 PM EDT

The chipmaker reports its latest quarterly results this week.

Do Not Leave Texas Roadhouse on the Grill Too Long

Bruce Kamich
Jun 27, 2022 11:40 AM EDT

Here's how traders can smartly play the restaurant chain

McDonald's Stock Isn't Really Cheap, But Here's How to Trade It

Stephen Guilfoyle
Jun 27, 2022 11:30 AM EDT

Is McDonald's okay in a recession? I would like to see that debt load reduced.

Here's Why I've Been Accumulating Homebuilder Stocks

Bret Jensen
Jun 27, 2022 11:00 AM EDT

There has been a lack of overbuilding in the housing market and inventories remain low.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:04 AM EDT PAUL PRICE

    Two Good Signs -- Especially for Small-Cap Investors

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login