The Paris of the Middle East
What to Trade: Buy TransGlobe Energy Corp (NSDQ: TGA) under USD13.50 and Market Vectors Gulf States Index (NYSE: MES) under 23.50.
Why Now: Transglobe Energy Corp should post solid production growth in 2011 and the stock should take off when oil prices head higher. Meanwhile, the exchange-traded fund offers broad exposure to equities in the Persian Gulf states, markets that could rally later in the year.
After a late-night flight on Middle East Airlines from Athens, Greece, Elliott and Yiannis land in Beirut. The duo gets their bearings and sets off into the cardamom-scented air for Hotel Albergo, a former apartment building built during the 1920s that was subsequently converted into a hotel. Located on Abdel Wahab Al Inglizi–a street named for one of the patriots executed by the Turks in 1915–the hotel lives up to its reputation for providing personalized service and a cozy atmosphere.
To celebrate their arrival in the Middle East, the two stock-pickers split a bottle of Laurent-Beirut Brut at the hotel’s rooftop bar and contemplate what adventures the city holds in store for them. Many cities are best viewed on foot, but after three hours of sightseeing under the merciless Beirut sun, drinks and lunch at the popular Balthazar Cafe and Restaurant are a welcome respite.
Yiannis: What do you think of Beirut?
Elliott: I’m thoroughly impressed. Beirut is one of the cleanest cities I’ve visited, and the high-end shops and restaurants are reminiscent of London, New York or Paris. At the same time, these Western trappings haven’t muscled out the local culture. Walking around the city, I was amazed that the country was embroiled in civil war only 20 years ago; we encountered few vestiges of the area’s violent past.
Yiannis: I’ve visited Beirut off and on for some time. I’m still impressed with how quickly the city rebuilt after the war. And more construction is underway. Did you see those apartments back there?
Elliott: I wonder how much one of those 3,000-square meter luxury flats would set you back–the view of the sea alone would be worth the price of admission.
The waiter arrives to take Yiannis and Elliott’s lunch orders. The waiter speaks in French, Lebanon’s semi-official second language.
Yiannis: [In English]. We’ll have two gin and tonics and a bottle of water.
Elliott: [In French]. Actually, my friend would like a gin and tonic. I’ll have a glass of the white Bordeaux and an Italian salad.
“Of course, sir,” the waiter replies.
Yiannis: So you do speak French. That could have helped us at the airport and in the taxi. You can do all the talking from here on out.
Elliott: I can butcher the French language when necessary, but I’d rather stick to English to avoid embarrassment. Sometimes you have to make sacrifices to get the right drink.
Yiannis: How you can drink wine in this weather is beyond me–isn’t your face red enough from the sun?
Elliott: Wine is for every season. I’ll drink it in the dead of winter or while I’m baking in the desert.
Yiannis: You’re crazy, man. You mentioned some exciting developments in the energy industry last night. What’s on your mind? We need to plan the next issue of Cocktail Stocks before we return to Greece.
Elliott: Weren’t you listening to me at the rooftop bar?
Yiannis: I was tired. We all have energy crises, man. But you have my full attention now.
Elliott: Or until the food arrives. Anyway, you can’t discuss investment opportunities in the Middle East without mentioning energy. The countries on the eastern Mediterranean–Lebanon, Israel, Syria and Turkey–were never considered major energy producers, but that reputation is beginning to change. The eastern Mediterranean is home to one of the most talked-about plays in the Middle East.
Over the past few years, explorers have discovered three massive natural gas finds in the Levantine Basin offshore Israel: Tamar, Dalit and Leviathan. The industry estimates that these fields contain 25 trillion cubic feet of natural gas. Better still, exploratory wells in the region have yielded almost pure methane, limiting the need for additional processing. By many accounts, Leviathan is the largest natural gas find in the past decade.
The core areas of these plays are located beneath huge salt deposits in water that’s 4,500 to 6,000 feet deep. These plays are similar in complexity to the deepwater oil and gas discoveries made offshore Brazil in recent years. Drilling successfully in this harsh environment requires the latest technology and considerable investment.
Yiannis: Sounds like a job for ExxonMobil Corp (NYSE: XOM), BP (LSE: BP, NYSE: BP) or one of the other major integrated oil and gas companies.
Elliott: Noble Energy (NYSE: NBL), a large US-based independent producer, holds the leading interest in these Israeli discoveries. The complexity of these deepwater fields is one challenge, but political tensions are another hurdle.
Yiannis: No surprise there.
Elliott: The three deepwater gas discoveries are located near Israel’s maritime border with the island of Cyprus. Noble Energy has also received a concession to explore for natural gas on the Republic of Cyprus’ side of the border, which features similar geological features.
But The Turkish Republic of Northern Cyprus occupies the northern third of the island. Although the international community only recognizes the Republic of Cyprus as a legitimate government, the Turkish contingent in the North has complained vociferously that they’ve been cheated out of a stake in potential discoveries. The Turkish Republic of Northern Cyrpus also objects to delineation of the Israel-Cyprus maritime border.
Elliott halts his lecture in disgust as Yiannis stuffs a chocolate éclair into his mouth and chews greedily. Elliott turns his attention to his salad of Bufala mozzarella, fresh tomatoes and basil.
Yiannis: What does Cyprus have to do with Lebanon? Why can’t you just enjoy your surroundings, man? Beirut is beautiful in the summer.
Elliott: The maritime border between Israel and Lebanon is also in dispute, which has led to concerns that Israel may have auctioned off reserves that belong to Lebanon. Meanwhile, drilling activity in the region should pick up, though Lebanon has yet to establish a process for auctioning oil and natural gas exploration and production concessions in its territorial waters. If the oil and gas industry comes to Lebanon, this frontier economy could enjoy quite a boom.
Having refueled for the afternoon, Elliott and Yiannis decide to take their conversation on the road. As the duo approach the parliament building, Yiannis resumes his role as tour guide and points out Place de L’Etoile, a favorite hangout of former Prime Minister Rafic Hariri who was assassinated in 2005.
Elliott: I see that Beiruit is also home to fine Irish cuisine.
Yiannis: What are you talking about, man?
Elliott: There’s a McDonald’s (NYSE: MCD) restaurant in the shadow of the Mohammed Al-Amine mosque that you just pointed out.
Yiannis: Right. Before you start lecturing me about McDonald’s international growth prospects, let’s focus on the regional natural gas story you were hyping up at lunch. Is Noble Energy’s stock too slow-moving for Cocktail Stocks?
Elliott: I like Noble Energy for its attractive assets in West Africa and the deepwater Gulf of Mexico, but the stock is more of a long-term play.
Yiannis: Do any small-cap names offer exposure to Middle East oil and gas production?
Elliott: Most projects in the Middle East and North Africa involve agreements between massive integrated energy companies such as Chevron Corp (NYSE: CVX) or Total (Paris: FP, NYSE: TOT) and national oil companies. A few of the larger independent producers like Noble Energy also operate in the region. The small fry are few and far between. One speculative name I’ve had my eye on is TransGlobe Energy Corp (TSX: TGL, NSDQ: TGA), a Canadian outfit with a market capitalization of about USD900 billion that produces 11,000 barrels of oil per day in Egypt and Yemen. The company’s Egyptian operations account for about 80 percent of its output and roughly 90 percent of its planned 2011 capital spending.
In Egypt, the firm’s top fields are the West Gharib and adjacent West Bakr, located east of the Nile, near the Gulf of Suez. The company also has an interest in another field to the south and two fields located to the west of Cairo. Two of these fields are idle until the Egyptian government approves a production-sharing contract that enables Transglobe Energy to recover its costs and share a portion of the profits–a common arrangement.
Although these small fields wouldn’t move the needle for one of the Super Oils, these plays continue to generate meaningful production and earnings growth for Transglobe Energy. In 2010 the company doubled its oil output from its Egyptian operations, and management expects this figure to increase from less than 10,000 barrels per day last year to at least 13,000 barrels per day in 2011.
What’s your take on the political environment in Egypt?
Yiannis: The Egyptian people will continue to agitate for additional freedom, but the political situation should remain stable for the foreseeable future. Business should proceed as usual.
Elliott: Yemen could be another story.
Yiannis: The situation in Yemen is much more difficult to assess, but perhaps there’s some upside if the unrest in the country settles down.
Elliott: Perhaps. At this point, the market hasn’t priced in much value for Transglobe Energy’s Yemeni operations. Meanwhile, management has allocated only 10 percent of its 2011 capital budget to this segment, though the firm remains upbeat on the productivity of its fields and wells in the country.
For now, the market will focus on oil prices and oil production growth.
Yiannis: Are you still bullish on oil?
Elliott: I’m still bullish on oil prices. Libyan oil output will remain offline for some time, while the International Energy Agency’s (IEA) coordinated release of oil from strategic petroleum reserves is a short-term measure to appease worries about rising energy prices during peak summer demand.
As I explained in the most recent issue of The Energy Strategist, this move demonstrates the extent to which the US and IEA were worried about the tightening supply-demand balance in global oil prices. Ironically, temporarily lower oil prices may stimulate additional consumption and heighten the risk that demand will outstrip supply later in the year. Meanwhile, these releases erode the existing supply cushion.
Oil prices should recover once concerns about the global economy abate. Rising oil prices would propel Transglobe Energy’s share price significantly higher. But this upside potential entails higher risk; small-cap stocks are far more volatile than larger-cap names such as Noble Energy.
Yiannis: Let’s think it over and make a decision at tonight’s dinner.
Fast-forward to the evening. The stock-pickers join Yiannis’ Lebanese friends at an outdoor lounge on the 25th floor of the Four Seasons Hotel in Beirut. The party includes a Lebanese businessman, a Lebanese political operative and a visitor from one of the Gulf States.
Businessman: As I mentioned to Elliott in the elevator, most of the foreign direct investment in Lebanon flows into real estate and currency deposits. Construction permits were up 24 percent in first five months of 2011.
Yiannis: Who is buying all these high-end properties?
Political Operative: The Gulfies
Elliott: The what?
Political Operative: People from the oil-rich Persian Gulf nations.
Gulf Visitor: Given the amount of money we spend here, you might want to curb your tongue.
Political Operative: Come on, man. You know we love you.
Gulf Visitor: And we love Lebanon–it’s the best place in the Middle East for summer or winter holidays.
Yiannis: War permitting, of course.
Gulf Visitor: True, but we’ve had five quiet years.
Businessman: Gentlemen, let’s get back to business. Over the past few years, the price of luxury residential units has skyrocketed in Lebanon, propelling the economy to a 9 percent growth rate in 2009. My forecast calls for gross domestic product (GDP) to grow by about 3 percent in 2011 because of the general slowdown and political uncertainty.
Yiannis: But if political conditions improve could GDP growth hit 4 percent this year?
Businessman: It’s a possibility. Most analysts expect the Lebanese economy to grow 5 percent in 2012 and at a roughly 4 percent rate thereafter.
Political Operative: Exports increased 4 percent in the first quarter, which was an encouraging sign.
Elliott: Exports?
Political Operative: Pearls, precious and semi-precious stones, base metals, machinery, and mechanical appliances.
Businessman: Meanwhile, the banking system is awash with liquidity because of massive inflows of foreign deposits over the past three years. This liquidity allows banks to buy public debt, propping up the country’s public finances.
Political Operative: This way the current account deficit can be covered easily.
Elliott: But a potential slowdown in real estate could be a short-term negative?
Businessman: That’s true. We’ve seen signs that sales prices have moderated after a substantial run-up.
But the Lebanese Central Bank’s assets are currently around USD66.12 billion, up 5.6 percent since the beginning of the year. On the other hand, total assets held by Lebanese commercial banks are around USD135 billion.
Yiannis: Not bad at all. But are you guys happy with the political situation?
Political Operative: The politicians have finally agreed to a new government coalition that confers a lot of power to the second-largest party in parliament, Michel Aoun’s Free Patriotic Movement. The coountry’s largest political party decided not to participate in the newly formed government. Although this may create some problems down the road, the Lebanese are happy to finally have a government.
Yiannis: Something is better than nothing in this situation. Market Vectors Gulf States Index (NYSE: MES) would offer general exposure to the Persian Gulf.
Gulf Visitor: That’s not a bad idea. Equity markets in the Gulf States have been flat thus far and could rally once the political situation stabilizes.
Businessman: I wouldn’t bet the house on that exchange-traded fund, though it could pan out.
Elliott: We never advise people to bet the house. Yiannis, we’ll have to figure out the next pick at dinner.
Yiannis and Elliott meet for dinner at Al Dente, the first high-quality Italian restaurant to open in Beirut after the Lebanese civil war. The restaurant is on a quiet street in an old neighborhood. They order a bottle of 1999 Chateau Musar, the first major Lebanese winery to export wines outside the country. You can read more about this wine and Yiannis and Elliott’s visit to the vineyard over the next few days on the Cocktail Stocks blog.
Yiannis: I just realized that today is the Fourth of July. Let’s toast your Independence day.
Elliott: Good call. Let’s offer subscribers two recommendations in celebration of Independence Day.
Yiannis: Let’s do it.
Elliott: Buy TransGlobe Energy Corp (NSDQ: TGA) under USD13.50 and Market Vectors Gulf States Index (NYSE: MES) under 23.50.
Past Picks
August 2010: Vale (NYSE: VALE)–Buy < 36
September 2010: Teekay Tankers (NYSE: TNK)–Buy < 13.50
November 2010: True Blue (NYSE: TBI)–Buy < 17
February 2011: ProShares UltraShort 20+ Year Treasury (NYSE: TBT)–Buy < 42
May 2011: TAL International (NYSE: TAL)–Buy < 40
June 2011: iShares MSCI Italy Index (NYSE: EWI)–Buy < 20
Why Now: Transglobe Energy Corp should post solid production growth in 2011 and the stock should take off when oil prices head higher. Meanwhile, the exchange-traded fund offers broad exposure to equities in the Persian Gulf states, markets that could rally later in the year.
After a late-night flight on Middle East Airlines from Athens, Greece, Elliott and Yiannis land in Beirut. The duo gets their bearings and sets off into the cardamom-scented air for Hotel Albergo, a former apartment building built during the 1920s that was subsequently converted into a hotel. Located on Abdel Wahab Al Inglizi–a street named for one of the patriots executed by the Turks in 1915–the hotel lives up to its reputation for providing personalized service and a cozy atmosphere.
To celebrate their arrival in the Middle East, the two stock-pickers split a bottle of Laurent-Beirut Brut at the hotel’s rooftop bar and contemplate what adventures the city holds in store for them. Many cities are best viewed on foot, but after three hours of sightseeing under the merciless Beirut sun, drinks and lunch at the popular Balthazar Cafe and Restaurant are a welcome respite.
Yiannis: What do you think of Beirut?
Elliott: I’m thoroughly impressed. Beirut is one of the cleanest cities I’ve visited, and the high-end shops and restaurants are reminiscent of London, New York or Paris. At the same time, these Western trappings haven’t muscled out the local culture. Walking around the city, I was amazed that the country was embroiled in civil war only 20 years ago; we encountered few vestiges of the area’s violent past.
Yiannis: I’ve visited Beirut off and on for some time. I’m still impressed with how quickly the city rebuilt after the war. And more construction is underway. Did you see those apartments back there?
Elliott: I wonder how much one of those 3,000-square meter luxury flats would set you back–the view of the sea alone would be worth the price of admission.
The waiter arrives to take Yiannis and Elliott’s lunch orders. The waiter speaks in French, Lebanon’s semi-official second language.
Yiannis: [In English]. We’ll have two gin and tonics and a bottle of water.
Elliott: [In French]. Actually, my friend would like a gin and tonic. I’ll have a glass of the white Bordeaux and an Italian salad.
“Of course, sir,” the waiter replies.
Yiannis: So you do speak French. That could have helped us at the airport and in the taxi. You can do all the talking from here on out.
Elliott: I can butcher the French language when necessary, but I’d rather stick to English to avoid embarrassment. Sometimes you have to make sacrifices to get the right drink.
Yiannis: How you can drink wine in this weather is beyond me–isn’t your face red enough from the sun?
Elliott: Wine is for every season. I’ll drink it in the dead of winter or while I’m baking in the desert.
Yiannis: You’re crazy, man. You mentioned some exciting developments in the energy industry last night. What’s on your mind? We need to plan the next issue of Cocktail Stocks before we return to Greece.
Elliott: Weren’t you listening to me at the rooftop bar?
Yiannis: I was tired. We all have energy crises, man. But you have my full attention now.
Elliott: Or until the food arrives. Anyway, you can’t discuss investment opportunities in the Middle East without mentioning energy. The countries on the eastern Mediterranean–Lebanon, Israel, Syria and Turkey–were never considered major energy producers, but that reputation is beginning to change. The eastern Mediterranean is home to one of the most talked-about plays in the Middle East.
Over the past few years, explorers have discovered three massive natural gas finds in the Levantine Basin offshore Israel: Tamar, Dalit and Leviathan. The industry estimates that these fields contain 25 trillion cubic feet of natural gas. Better still, exploratory wells in the region have yielded almost pure methane, limiting the need for additional processing. By many accounts, Leviathan is the largest natural gas find in the past decade.
The core areas of these plays are located beneath huge salt deposits in water that’s 4,500 to 6,000 feet deep. These plays are similar in complexity to the deepwater oil and gas discoveries made offshore Brazil in recent years. Drilling successfully in this harsh environment requires the latest technology and considerable investment.
Yiannis: Sounds like a job for ExxonMobil Corp (NYSE: XOM), BP (LSE: BP, NYSE: BP) or one of the other major integrated oil and gas companies.
Elliott: Noble Energy (NYSE: NBL), a large US-based independent producer, holds the leading interest in these Israeli discoveries. The complexity of these deepwater fields is one challenge, but political tensions are another hurdle.
Yiannis: No surprise there.
Elliott: The three deepwater gas discoveries are located near Israel’s maritime border with the island of Cyprus. Noble Energy has also received a concession to explore for natural gas on the Republic of Cyprus’ side of the border, which features similar geological features.
But The Turkish Republic of Northern Cyprus occupies the northern third of the island. Although the international community only recognizes the Republic of Cyprus as a legitimate government, the Turkish contingent in the North has complained vociferously that they’ve been cheated out of a stake in potential discoveries. The Turkish Republic of Northern Cyrpus also objects to delineation of the Israel-Cyprus maritime border.
Elliott halts his lecture in disgust as Yiannis stuffs a chocolate éclair into his mouth and chews greedily. Elliott turns his attention to his salad of Bufala mozzarella, fresh tomatoes and basil.
Yiannis: What does Cyprus have to do with Lebanon? Why can’t you just enjoy your surroundings, man? Beirut is beautiful in the summer.
Elliott: The maritime border between Israel and Lebanon is also in dispute, which has led to concerns that Israel may have auctioned off reserves that belong to Lebanon. Meanwhile, drilling activity in the region should pick up, though Lebanon has yet to establish a process for auctioning oil and natural gas exploration and production concessions in its territorial waters. If the oil and gas industry comes to Lebanon, this frontier economy could enjoy quite a boom.
Having refueled for the afternoon, Elliott and Yiannis decide to take their conversation on the road. As the duo approach the parliament building, Yiannis resumes his role as tour guide and points out Place de L’Etoile, a favorite hangout of former Prime Minister Rafic Hariri who was assassinated in 2005.
Elliott: I see that Beiruit is also home to fine Irish cuisine.
Yiannis: What are you talking about, man?
Elliott: There’s a McDonald’s (NYSE: MCD) restaurant in the shadow of the Mohammed Al-Amine mosque that you just pointed out.
Yiannis: Right. Before you start lecturing me about McDonald’s international growth prospects, let’s focus on the regional natural gas story you were hyping up at lunch. Is Noble Energy’s stock too slow-moving for Cocktail Stocks?
Elliott: I like Noble Energy for its attractive assets in West Africa and the deepwater Gulf of Mexico, but the stock is more of a long-term play.
Yiannis: Do any small-cap names offer exposure to Middle East oil and gas production?
Elliott: Most projects in the Middle East and North Africa involve agreements between massive integrated energy companies such as Chevron Corp (NYSE: CVX) or Total (Paris: FP, NYSE: TOT) and national oil companies. A few of the larger independent producers like Noble Energy also operate in the region. The small fry are few and far between. One speculative name I’ve had my eye on is TransGlobe Energy Corp (TSX: TGL, NSDQ: TGA), a Canadian outfit with a market capitalization of about USD900 billion that produces 11,000 barrels of oil per day in Egypt and Yemen. The company’s Egyptian operations account for about 80 percent of its output and roughly 90 percent of its planned 2011 capital spending.
In Egypt, the firm’s top fields are the West Gharib and adjacent West Bakr, located east of the Nile, near the Gulf of Suez. The company also has an interest in another field to the south and two fields located to the west of Cairo. Two of these fields are idle until the Egyptian government approves a production-sharing contract that enables Transglobe Energy to recover its costs and share a portion of the profits–a common arrangement.
Although these small fields wouldn’t move the needle for one of the Super Oils, these plays continue to generate meaningful production and earnings growth for Transglobe Energy. In 2010 the company doubled its oil output from its Egyptian operations, and management expects this figure to increase from less than 10,000 barrels per day last year to at least 13,000 barrels per day in 2011.
What’s your take on the political environment in Egypt?
Yiannis: The Egyptian people will continue to agitate for additional freedom, but the political situation should remain stable for the foreseeable future. Business should proceed as usual.
Elliott: Yemen could be another story.
Yiannis: The situation in Yemen is much more difficult to assess, but perhaps there’s some upside if the unrest in the country settles down.
Elliott: Perhaps. At this point, the market hasn’t priced in much value for Transglobe Energy’s Yemeni operations. Meanwhile, management has allocated only 10 percent of its 2011 capital budget to this segment, though the firm remains upbeat on the productivity of its fields and wells in the country.
For now, the market will focus on oil prices and oil production growth.
Yiannis: Are you still bullish on oil?
Elliott: I’m still bullish on oil prices. Libyan oil output will remain offline for some time, while the International Energy Agency’s (IEA) coordinated release of oil from strategic petroleum reserves is a short-term measure to appease worries about rising energy prices during peak summer demand.
As I explained in the most recent issue of The Energy Strategist, this move demonstrates the extent to which the US and IEA were worried about the tightening supply-demand balance in global oil prices. Ironically, temporarily lower oil prices may stimulate additional consumption and heighten the risk that demand will outstrip supply later in the year. Meanwhile, these releases erode the existing supply cushion.
Oil prices should recover once concerns about the global economy abate. Rising oil prices would propel Transglobe Energy’s share price significantly higher. But this upside potential entails higher risk; small-cap stocks are far more volatile than larger-cap names such as Noble Energy.
Yiannis: Let’s think it over and make a decision at tonight’s dinner.
Fast-forward to the evening. The stock-pickers join Yiannis’ Lebanese friends at an outdoor lounge on the 25th floor of the Four Seasons Hotel in Beirut. The party includes a Lebanese businessman, a Lebanese political operative and a visitor from one of the Gulf States.
Businessman: As I mentioned to Elliott in the elevator, most of the foreign direct investment in Lebanon flows into real estate and currency deposits. Construction permits were up 24 percent in first five months of 2011.
Yiannis: Who is buying all these high-end properties?
Political Operative: The Gulfies
Elliott: The what?
Political Operative: People from the oil-rich Persian Gulf nations.
Gulf Visitor: Given the amount of money we spend here, you might want to curb your tongue.
Political Operative: Come on, man. You know we love you.
Gulf Visitor: And we love Lebanon–it’s the best place in the Middle East for summer or winter holidays.
Yiannis: War permitting, of course.
Gulf Visitor: True, but we’ve had five quiet years.
Businessman: Gentlemen, let’s get back to business. Over the past few years, the price of luxury residential units has skyrocketed in Lebanon, propelling the economy to a 9 percent growth rate in 2009. My forecast calls for gross domestic product (GDP) to grow by about 3 percent in 2011 because of the general slowdown and political uncertainty.
Yiannis: But if political conditions improve could GDP growth hit 4 percent this year?
Businessman: It’s a possibility. Most analysts expect the Lebanese economy to grow 5 percent in 2012 and at a roughly 4 percent rate thereafter.
Political Operative: Exports increased 4 percent in the first quarter, which was an encouraging sign.
Elliott: Exports?
Political Operative: Pearls, precious and semi-precious stones, base metals, machinery, and mechanical appliances.
Businessman: Meanwhile, the banking system is awash with liquidity because of massive inflows of foreign deposits over the past three years. This liquidity allows banks to buy public debt, propping up the country’s public finances.
Political Operative: This way the current account deficit can be covered easily.
Elliott: But a potential slowdown in real estate could be a short-term negative?
Businessman: That’s true. We’ve seen signs that sales prices have moderated after a substantial run-up.
But the Lebanese Central Bank’s assets are currently around USD66.12 billion, up 5.6 percent since the beginning of the year. On the other hand, total assets held by Lebanese commercial banks are around USD135 billion.
Yiannis: Not bad at all. But are you guys happy with the political situation?
Political Operative: The politicians have finally agreed to a new government coalition that confers a lot of power to the second-largest party in parliament, Michel Aoun’s Free Patriotic Movement. The coountry’s largest political party decided not to participate in the newly formed government. Although this may create some problems down the road, the Lebanese are happy to finally have a government.
Yiannis: Something is better than nothing in this situation. Market Vectors Gulf States Index (NYSE: MES) would offer general exposure to the Persian Gulf.
Gulf Visitor: That’s not a bad idea. Equity markets in the Gulf States have been flat thus far and could rally once the political situation stabilizes.
Businessman: I wouldn’t bet the house on that exchange-traded fund, though it could pan out.
Elliott: We never advise people to bet the house. Yiannis, we’ll have to figure out the next pick at dinner.
Yiannis and Elliott meet for dinner at Al Dente, the first high-quality Italian restaurant to open in Beirut after the Lebanese civil war. The restaurant is on a quiet street in an old neighborhood. They order a bottle of 1999 Chateau Musar, the first major Lebanese winery to export wines outside the country. You can read more about this wine and Yiannis and Elliott’s visit to the vineyard over the next few days on the Cocktail Stocks blog.
Yiannis: I just realized that today is the Fourth of July. Let’s toast your Independence day.
Elliott: Good call. Let’s offer subscribers two recommendations in celebration of Independence Day.
Yiannis: Let’s do it.
Elliott: Buy TransGlobe Energy Corp (NSDQ: TGA) under USD13.50 and Market Vectors Gulf States Index (NYSE: MES) under 23.50.
Past Picks
August 2010: Vale (NYSE: VALE)–Buy < 36
September 2010: Teekay Tankers (NYSE: TNK)–Buy < 13.50
November 2010: True Blue (NYSE: TBI)–Buy < 17
February 2011: ProShares UltraShort 20+ Year Treasury (NYSE: TBT)–Buy < 42
May 2011: TAL International (NYSE: TAL)–Buy < 40
June 2011: iShares MSCI Italy Index (NYSE: EWI)–Buy < 20
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