WHAT TO DO NOW: Emerging and U.S. markets looked set to break their correction lows late last week amid a rash of negative news and poor earnings reactions. Indeed, the iShares EM Fund (EEM) dipped below its 200-day line and within a half point of its February low last Thursday.
But since then, the buyers have shown up! Our Emerging Markets Timer is still negative, but it’s good to see EEM perk above its (still downtrending) 25-day line today. A good day or two from here could flip the intermediate-term trend.
More encouraging is the action of the Golden Dragon Fund (PGJ), which tracks U.S.-traded Chinese stocks—it held up much better than EEM during the last leg of the market’s three-month correction, and now it’s popped nicely—so much so, in fact, that the intermediate-term trend for PGJ has turned up.
Taken together, while we can’t definitively conclude that the bulls have retaken control, there’s no question the evidence has improved greatly. With stocks having chopped lower for three-plus months, there’s a firm foundation for the market to build on, and we’re very encouraged with the action of our stocks.
Overall, then, we’re taking a slightly more constructive view of the market. Tonight, we’re moving 51job (JOBS) back to Buy a Half, moving Alibaba (BABA) and GDS Holdings (GDS) back to buy, buying another half position of Petrobras (PBR) and adding an initial half position in 58.com (WUBA).
51Job (JOBS) pulled back to its 50-day line in the second half of April, but its action since then has been outstanding, with the stock ripping to new highs on the backs of a terrific Q1 report. Local currency revenues boomed 34%, (including a 31% gain in its core online recruiting segment), with U.S. dollar earnings per share up 20% and management guiding toward a 40% gain in revenues in Q2. (Analysts see earnings up 28% this year and another 26% next.) With the stock catapulting to new highs on great volume, we’ll go back to Buy A Half. We could try to fill out our position (buy another half) if JOBS pauses or pulls back for a couple of days. BUY A HALF.
58.com (WUBA) broke out of its base on April 30, right before our write-up last week, and, importantly, has held that move since then. Earnings are still upcoming (likely later this month), but given the improving market, the action is enough for us to buy a half position and look to fill out that position in the weeks ahead. BUY A HALF.
Alibaba (BABA) has stormed back toward its highs in the wake of a well-received quarterly report—revenues rose 61% in local currency (including a surge in core commerce sales of 62%), earnings were up 44% and management forecast revenues for fiscal 2019 (which just began April 1) to rise more than 60%! While earnings growth will be crimped by spending, analysts still see the bottom line up 30% or so each of the next two years. There’s still some overhead to chew through, but it now looks like BABA’s month-long period below its 200-day line was a shakeout, and the buyers are back. We’ll return our rating to Buy, though try to get in on dips. BUY.
Autohome (ATHM) is our third earnings winner to talk about, though it didn’t look that way initially (the stock fell early Wednesday but it’s been all up since then). Revenues only grew 5%, but that was because of the firm’s effort to deemphasize direct car sales last year; the core segments of advertising for automakers (up 20%) and lead generation services for auto dealers (up 31%) remained very strong. And earnings rose 53%, which was easily above estimates. Analysts see earnings up 26% and 22% during the next two years (respectively), and there’s little doubt this growth story is continuing. If you own some, hang on, and if not, you can start a position here or on dips of a couple of points. BUY.
BeiGene (BGNE) nosed out to new highs a week ago, even as the market was on its knees, and did so again today as the buyers flexed their muscles. The company’s first quarter results were fine, but the focus here is on the future, and investors are clearly optimistic about the firm’s early-stage trials going on. We’ll stick with a Buy a Half rating. BUY A HALF.
GDS Holdings (GDS) reported great first quarter results today, with local currency revenue up 84% from a year ago and adjusted EBITDA (a measure of cash flow) soaring 127%, while cash flow margins rose from 26% to 32%. The stock moved to new highs on the news, and we continue to think this story has a very long runway of growth as GDS positions itself as the Equinix or Digital Realty of China. Breakouts have been hit or miss lately, but we’ve seen enough strength to go back to Buy here, though you might consider trying to get in on a dip of a point or two. BUY.
iQIYI, Inc. (IQ) has been all over the map, rising to 15 to 20, then dipping back to 16, and today, exploding to new highs on huge volume. It’s a bit too wild and wooly for us right here—we’ll stay on Watch, but are looking for an entry point. WATCH.
PagSeguro (PAGS) has been a bit disappointing in recent days, dipping sharply and failing to bounce much despite the market’s uptick. Earnings are due out May 29, and we’d like to hold on until then given the company’s huge potential. We’ll stick with a Hold rating on our half position, but a drop below 30 would likely have us moving on. HOLD A HALF.
We’ve been waiting for Petrobras (PBR) to get going, and it looks like our patience is paying off, as shares have catapulted to new highs on outstanding volume over the past two days. First-quarter results showed a 4% gain in revenue and a 52% gain in earnings (well above estimates), while gross debt decreased 5.6%, debt-to-cash flow fell even more and free cash flow remained buoyant. Analysts now see earnings of $1.18 per share this year and more next year. This big-volume breakout after a tight two-month trading range looks bullish to us—we’ll buy another half position here, bringing us to a full position. BUY ANOTHER HALF.
TAL Education (TAL) is another Chinese stock that’s come to life, pushing toward new highs, though volume has been sub-par on the move. Overall, we’re optimistic, because the education story in China has great growth potential. Short-term, though, we’re content to stay on a Hold rating given the low-volume advance into resistance. Just remember that, to us (unlike Wall Street), Hold really does mean Hold. HOLD A HALF.
Weibo (WB) is one of the few stocks we’ve seen in the past couple of weeks to get dented on earnings—sales and earnings (up 76% and 92%, respectively) topped estimates, but Q2 guidance was “only” in-line. Given the stock’s huge run during the past two years, that was enough to bring out the sellers. Still, taking a step back, WB’s earnings dip found support at the 200-day line, which has contained the stock’s entire advance since early 2016. We’ll hold our remaining half position here, albeit with a tight mental stop near 110. HOLD A HALF.
