Buying What Is Cheap, Hated and in an Uptrend

Tickers in this article: SBY SCIF TWO

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

He told his subscribers back in November 2012 the same thing Sjuggerud told me today,"We want to own a basket of smaller companies in India. Our preferred way to do this is to buy SCIF which tracks the MSCI Index. SCIF does NOT hold the same portfolio as the MSCI Index. But it should track the performance of Indian small-cap stocks pretty well."

Then he told me that if SCIF only did as well as it did in the last cycle where Indian stocks hit bottom and soared, the returns may be phenomenal.

"You see, over the five-year span from Dec. 31, 2002, to Dec. 31, 2007, small-cap Indian stocks (SCIF) rose 1,358%, and the upside this time around may be just as good," he said.

Sjuggerud reminded me that this is a speculative investment. He suggested that if you decide to buy some SCIF that you sell half when the ETF is up 100%. As Jim Cramer reminds his TV viewers, "then you get back your original investment and you can speculate with the 'house's' money."

Speaking of the word "house," Sjuggerud's less-speculative investment theme is single-family residential housing. He told me home prices are still a "great bargain."

"Homes are more affordable than ever, especially in places like Florida, Arizona, Nevada, Washington State and even in sections of California. In the Orlando area of Florida the median home price is still around $120,000!"

That's why he recommends a recently spun-off real estate investment company called Silver Bay Realty Trust (SBY) , which closed on Friday at $21.33. Two Harbors Investments (TWO) , a hybrid mortgage REIT spun SBY off at the end of last year. The shares aren't that much higher than the $18-a-share IPO price.

The chart below takes a look at the price movement of both TWO and SBY over the past year. TWO closed last Friday at $12.25, not too far below its 52-week high of $12.55.

TWO ChartTWO data by YCharts

Sjuggerud said with the Federal Reserve's current monetary policies, which he calls "The Bernanke Asset Bubble," TWO could go higher. It pays a very generous double-digit dividend and maintains shares of SBY that it claims it will distribute later to shareholders as a sort of special bonus.

When it comes to SBY, Dr. Sjuggerud said it was managed by Two Harbors.

"SBY owns thousands of single-family homes in Florida, Arizona, California and Nevada," he said, and "80% of those homes are rented out to create an income stream for the company and eventually for shareholders." He anticipates SBY becoming a REIT which obligates it to distribute 90% of its "fund-from-operations" to unit holders.