WHAT TO DO NOW: Our previous moves to put the portfolio in a defensive stance have given us some protection. But today’s slump in emerging market stocks has put our Buy signal in question and further weakened many of our stocks. We have no moves in the portfolio this week, as we wait for earnings season to play out.
The iShares EM Fund (EEM) had been strengthening gradually since late June, giving us a Buy signal, albeit not a robust one. But the action that greeted today’s renewed threats of tariffs from both the U.S. and China has muddied the waters again. Both EEM and the Chinese-focused Golden Dragon ETF (PGJ) fell sharply at the open, dropping both ETFs below their 25- and 50-day moving averages. With most of our stocks reporting their quarterly earnings in August, this may be a bumpy month.
The tenuousness of our Buy signal is a good illustration of why we advise gradually increasing exposure rather than jumping in with both feet. Our heavy cash position is still insulating us somewhat from the dangers of both a jumpy market and the vagaries of earnings season.
We now have set dates for Q2 earnings reports for five of the eight stocks in our portfolio. Here are the firm dates we have:
Autohome (ATHM) and ZTO Express (ZTO) —August 8 before the open
GDS Holdings (GDS) —August 14 before the open
JD.com (JD) —August 16 before the open
Alibaba (BABA) —August 23 before the open
There are no set dates for Beigene (BGNE) and RYB Education (RYB).
The markets started the day in the red, but finished strongly. At the close, the Dow was essentially flat, off 8 points (0.03%), while the S&P 500 gained 14 points (0.49%) and the Nasdaq rose 95 points (1.24%). The iShares MSCI Emerging Markets ETF (EEM) had another off day, down 0.59 (1.33%) to close at 43.87.
Alibaba (BABA) is still getting the fisheye from investors. Nobody doubts that the company will remain profitable and keep its Amazon-grade leadership position in Chinese e-commerce. But while most of the company’s revenue comes from internal Chinese sales, fear of a possible trade war is still making investors too worried to get very enthusiastic about BABA. Even news of a new partnership with Starbucks didn’t give BABA a boost. The stock showed real power in April and May, and we will allow our profit to keep us in until a warming of trade relations lets it run again. HOLD.
Autohome (ATHM) got a little lift today after four days of selling on heavy volume. The stock is flirting with our mental stop around 94, mostly due to fears that a trade war might cut Chinese enthusiasm about car ownership off at the knees. That fear, plus a general risk-off attitude on the part of growth investors, will likely continue until there’s evidence that the Chinese economy is reaccelerating. When Autohome reports on August 8, analysts are looking for revenue of just under $285 million and earnings of 84 cents per share. We’ll keep the stock rated Hold until we see the reaction. HOLD.
BeiGene (BGNE) has recovered pretty well from its June swoon, recovering to sit atop its 25- and 50-day moving averages, even if those averages are stacked the wrong way. As a Chinese pharmaceutical, BeiGene has a bit of a headwind to work against, but its alliances with Celgene and another Western pharmaceutical changed the stock’s character. There’s plenty of news from clinical trials on the horizon, although the company hasn’t announced an earnings date yet. We will leave BGNE rated Hold a Half until the next catalyst occurs. HOLD A HALF.
GDS Holdings (GDS) was sold in a Special Hotline on Tuesday after an attack by a short seller accelerated the stock’s decline. We got out with a reduced (but still substantial) profit as the stock bounced slightly the next day. GDS hasn’t shown signs that buyers are ready to take it on again. SOLD.
iQIYI (IQ) reported its Q2 results on July 31, booking $931 million in revenue, a 46% increase) and a loss of 45 cents per share, a 54% bump in EPS. The company also announced a 75% year-over-year increase in total subscribing members. The response was positive, with the stock bumping higher on August 1 on good volume. All of that bump disappeared today, as emerging market stocks in general, and Chinese stocks in particular, were hit by a wave of selling. The good news is that the stock’s correction from its June 19 high above 46 has found support at 30 so far. We bought the stock early enough that we still have a substantial profit. With good earnings news in the bank, we think you can take a half position in IQ if you don’t own any. BUY A HALF.
JD.com (JD) hasn’t done much since we advised buying a half position two weeks ago, which is actually a sign of relative strength. The chart shows a stock that’s working hard to put in a bottom at around 35. Earnings are still a couple of weeks off, so we will be watching JD very closely, as its domestic retail business is likely to be quite sensitive to news about the general health of the Chinese economy. If you have a ton of cash on the sidelines (and a high risk tolerance), we think it’s still okay to buy a half position. BUY A HALF.
RYB Education (RYB) is relatively young, having come public just in September 2017. The stock is holding onto a majority of its June blastoff rally that came after a very flat basing structure in April and May. We’re happy to keep the stock rated Buy a Half as it consolidates its June gains and prepares for its Q2 earnings report (no date yet). BUY A HALF.
WNS Holdings (WNS) took a considerable dip after its earnings report on July 19, sliding from a high of 54 before earnings to a low close at 49 on July 30. WNS has caught a little updraft in the past couple of days, and is not trading above 50. The numbers in the company’s quarterly report looked like a solid beat, so it may be that investors are ready to give the stock some love. We’ll wait until the stock gets back atop its moving averages and we get a supportive market before we think about doing any buying. WATCH.
ZTO Express (ZTO) made a nice run in early July, but has given every bit of that gain back. The stock is trading right at its June and July support levels, which is technically hopeful. Everything will likely come down to the company’s earnings report before the market opens next Wednesday (August 8). Analysts are forecasting revenue of $654 million and earnings of 23 cents per share, and the reaction to the actual numbers will likely determine the stock’s tone for the next few months. We think you can still buy a half position, but only if you’re already heavily in cash and are ready to jump when you see the reaction to earnings. BUY A HALF.
