Table of Contents

1.  Market Update
2.  Short ETFs
3.  Endesa Chile (EOC)
4.  Additional Investing Ideas
5.  Investor Trivia -- What is Buffett Buying and Why?
6.  Featured Topic -- Follow the Smart Money and See Gains of Nearly +200%
7.  Free Investing Resources

Today's Top Stock Picks

Short ETFs Offer Double-Digit Gains in a Down Market
In the last few tumultuous months, short ETFs have not only been a bright spot, they've been blazing hot. Read More. . .

Power Through the Slowdown with this Foreign Utility Company
Based in Chile, Endesa generates and sells electric power in five South American countries. With demand jumping +10% in some spots, the stock looks like a long-term winner. Read More. . .

Market Update

Riding out the market last week was like holding a wolf by the ears: You didn't want to hang on, but you couldn't let go.

The Dow lost 128 points on Friday to end the week down -18.2%, putting its yearly performance at a loss of more than -35%. The last eight consecutive days of declines have chipped nearly 2,400 points off the average. Meanwhile, the broader S&P 500 Index has suffered a gut-wrenching decline of -42.5% from its year-ago high.

Friday's session saw almost unprecedented price swings. The Dow's day-long roller-coaster ride briefly dipped below 8,000, but at about 3 p.m., the blue chips launched from their nadir. They managed an unexpected burst of late-day effervescence that saw the average rocket more than 1200 points at one point from its low of the day.

Investors shouldn't spend too much time beating themselves up for what they held or should have held. This was the kind of week that is thankfully rare in stock market history -- when almost every high-quality and stable baby was thrown out with the bathwater. In fact, the only member of the Dow that remains in positive territory for the year is Wal-Mart (NYSE: WMT), up +7.2%. Meanwhile, eight Dow components have lost more than -40% of their value this year.

As dismal as last week was, there are at least a few silver linings for consumers and investors. Gas prices are well on their way to sub-$3 levels at the pump -- helping to keep more money in consumer's pockets and quell inflation. And investors might find some solace that the Dow finally found a resistance point at 8,000 last week, which may hold as a tenuous floor moving forward. 

But perhaps the brightest silver lining for investors is the one we can't see -- the vast amount of money that has been collecting on the sidelines, waiting for a signal to rush in and scoop up the bargains. The late afternoon rally we saw Friday probably wasn't a strong enough signal -- but it was clearly an optimistic signpost on our journey toward recovery.

In light of current market conditions, this week I wanted to devote some time to a group of funds that have actually been thriving -- inverse exchange-traded funds (ETFs). Everyone knows there are ETFs that benefit from the rise of almost every kind of market index -- from broad market indices to specialty sector indices to country-specific indices. But there are also dozens of ETFs that do just the reverse. They actually gain when markets fall. Below, I discuss why these funds might just be the insurance policy your portfolio needs in times like these.

Also, Market Advisor editor Paul Tracy offers up a classically defensive pick with a South American twist. Endesa Chile (NYSE: EOC, $30.60) is a utility company that operates in Chile, Argentina, Columbia, Brazil and Peru. Utility companies are known for their recession resistance, but Endesa has the added advantage of operating in parts of the world where they are still increasing their demand for power -- up to +10% annually.       
Good Investing!

-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

The tumult and uncertainty on Wall Street have ratcheted up to a whole new level. And by a number of measures, including an abnormally high CBOE Volatility Index, we may be in for more difficult times and bumpy rides ahead. 

As troubled as it has been, the market has benefited from some forays from bargain hunters and stress-relieving late-day rallies. But that doesn't disguise the fact that our economy, as well as many others around the world, will face significant challenges in the foreseeable future. My hope is that governmental leaders, both here and abroad, will rise to the challenge and work in constructive ways befitting the magnitude of our collective concerns.

With all that as a backdrop, I wanted to take just a minute to remind you there are ETFs that will allow you to profit, no matter the market.

For instance, the UltraShort MSCI Emerging Markets ProShares (AMEX: EEV) is a perfect solution for investors worried that emerging markets stocks are overheated and prone to even deeper declines. As an inverse/short fund, EEV and others like it are designed to move in the opposite direction as an underlying index -- meaning shareholders actually profit when the benchmark tanks, and vice-versa. And in EEV's case, it is designed to double the inverse of its benchmark.

In other words, the fund was made for markets just like this. As markets around the globe have sold off in the last couple of weeks, EEV surged from $98.19 to $172.62 per share -- a remarkable gain of nearly +75.8% since the end of September.

Of course, EEV is just one of many inverse funds aimed at different sectors and regions. And as you can see from the table below, all have done exactly what they were designed to do in this rough market:

The table above was constructed at the end of September, and most of these ETFs have posted even higher returns since. And while the table shouldn't be construed as a recommendation of the funds listed, it does provide a small random sample of what is available.

Just a few years ago, investors interested in profiting from a downturn in a specific corner of the market had to borrow shares from their broker, short individual companies -- and then hope they didn't pick a stock that went against the grain and moved higher. But now, betting against banks, small-cap stocks, or even entire market averages is just one convenient ticker symbol away thanks to issuers like Rydex and ProShares.

For the most part, I haven't placed terribly much emphasis on inverse funds in the past. After all, I'm generally a long-term investor, and ultimately the market goes up far more than it goes down. However, there are certainly times when this group can be very appealing, as the gains in the table above clearly prove.

These inverse funds can be looked at as a type of insurance policy for your portfolio. In other words, investing a modest amount in one of these funds can be a useful way to protect profits in certain asset classes or simply hedge against further market declines. And like any insurance premium, you hope it's never needed; ideally, the market reverses course and you end up realizing a small loss on the position that is more than offset by gains elsewhere.

But the events of recent days illustrate that sometimes unexpected circumstances can materially impact your portfolio, in which case an inverse fund can help soften the blow. The lower the market retreats, the higher these funds advance. With all this in mind, readers might want to consider how adding an inverse fund or two might help smooth out some of this unprecedented market volatility.

Based in Chile, Endesa Chile (NYSE: EOC, $30.60) generates and sells electric power in five South American countries: Chile, Argentina, Columbia, Brazil and Peru. In total, EOC owns 51 plants with a total generating capacity of 12,899 megawatts.

Endesa Chile's biggest advantage over competitors is that 62% of its generation capacity consists of hydroelectric power plants. Unlike coal or gas-fired plants, there is no fuel cost with hydroelectric facilities; therefore, the rising cost of most energy commodities in recent years has had only a limited effect on EOC's generation costs. Of course, drought conditions can impact the company's ability to generate power.

In the U.S. and other developed countries, growth in electricity demand is slow and steady. However, in emerging markets the growth in demand is far faster. For example, in the first half of 2008, Peruvian electricity demand jumped more than +10% year-over-year while Brazilian demand was up just shy of +4%.

To take advantage of continued strong growth in its core markets, EOC has plans to expand its generating capacity by roughly 2,000 megawatts over the next five years; nearly half that new capacity is already under construction. That new generation will be a combination of new hydroelectric facilities, a handful of large wind power projects and, of course, coal and gas-fired facilities.

My staff and I also like Endesa Chile's business mix between regulated and unregulated power generation. The regulated businesses offer the company a steady and dependable return on capital. Meanwhile, spot power prices have been generally rising in EOC's core markets in recent years due to strong demand and insufficient generating capacity growth. Therefore, unregulated sales of electricity give the company upside earnings potential.

Action to Take --> Endesa Chile offers investors exposure to strong growth in electricity demand in South America, but also offers defensive characteristics. The stock looks like a solid "Buy" candidate under $40 per share.