Luckin Coffee (LK) Up 49% in the Past Two Weeks
Congress Passage of Pro-Democracy Hong Kong Bill Infuriates China
The Cabot Global Stocks Explorer portfolio is doing well in 2019 and a number of recommendations have recently surged on the strength of impressive earnings and an improving environment for emerging and international stocks.
Sea Limited (SE) has been the top performer, and has over the last two weeks gotten back to its 2019 high, and is up more than 300% so far in 2019.
Over the past two weeks, Luckin Coffee (LK) has soared 49% on the back of a strong third quarter and investors are taking note of strong institutional support for the stock. Luckin SEC filings show that seven institutional investors collectively hold over 60% of shares.
In the third quarter, the number of stores/outlets grew to 3,680 and revenue was up nearly 70%, or 2.9 times the increase in store count. The company is also exploring introducing a revenue sharing franchise model.
A more recent recommendation, NovoCure (NVCR), has moved from 75 to 91 this month.
Hong Kong Moves to the Front Burner
On the big-picture front, the U.S.-China trade negotiations are becoming entangled with the increasingly intense Hong Kong protests that have been simmering on the back burner for months.
The U.S. Senate passed a bill this week by unanimous consent to protect human rights in Hong Kong amidst an escalation of the crackdown on pro-democracy protests.
The bill, called the “Hong Kong Human Rights and Democracy Act,” was also passed by the House of Representatives on Wednesday by a near-unanimous vote of 471 to 1, would revise Hong Kong’s special market status.
This puts extreme pressure on President Trump to sign the bill (which would make it official) as he struggles to do a trade deal with China. The bill would require the U.S. government “to impose sanctions on Chinese and Hong Kong officials responsible for human rights abuses in the territory.”
A Trump veto would be symbolic, as the House and Senate would easily garner the two-thirds votes to override a veto. The measure was quickly condemned by China with promises of retaliation if the bill becomes law.
In other words, dark trade war clouds still loom…
EXPLORER PORTFOLIO UPDATE
Portfolio Change: Move Huya (HUYA) from Buy a Half to Hold a Half
Alibaba (BABA) shares will face some dilution as, despite the turmoil in Hong Kong, Alibaba’s IPO in Hong Kong was priced at $180, or about a 3% discount to its NYSE share price.
I would have thought that BABA would have performed better in the wake of its recent positive earnings report (sales up 40%), and big annual Singles’ Day sales event ($38 billion of merchandise sold).
Still, I like the stock. For a company of its size, Alibaba is posting impressive numbers and is a core holding for those looking for exposure to the rising Chinese consumer class. BUY.
DBS Bank (DBSDY) shares have moved modestly upward since being added to the portfolio but keep in mind that this is largely a dividend and income play with dividends climbing by over 100% from 2014 to 2018.
DBS is the largest and highest quality bank in Southeast Asia and the leading consumer bank in both Hong Kong and Singapore.
Its tentacles reach out through 200 branches in 50 cities. DBS produces steady profit margins, revenue, and earnings and is also increasing market share in consumer and corporate banking.
Despite all of these strengths, DBS is trading at only 12 times trailing earnings. Plus, it comes with a 4.8% dividend yield. I encourage you to buy at these levels for a great core holding and play on Southeast Asia. BUY A HALF.
Grupo Televisa (TV) shares have been a bit of a laggard in the Explorer portfolio as Mexico continues to be out of favor with investors.
We will give this stock some more time to get traction since TV is like having CBS, Comcast and 21st Century Fox tied together in one package. Executives stated recently that they were exploring stepping up stock buybacks.
The company owns an appealing group of businesses, including a dominant set of Mexican TV stations; a controlling stake in the country’s largest satellite TV business; and a 36% interest in Univision, the big U.S. Hispanic broadcaster.
In addition, TV is also Mexico’s top provider of cable TV services and has a profitable programming contract with Univision that is one of its most prized assets.
All of this is very positive for TV and I continue to rate this a buy. BUY A HALF.
Huya (HUYA) shares were down a point this week even as the company recently reported strong third-quarter results, with revenue up 77% year-over-year and net income up 70%. Both of these numbers were above expectations. The stalled U.S.-China talks may very well be keeping a lid on this stock.
Huya remains one of the better-positioned companies for the secular growth in e-sports media given its unique position as a leading game streaming platform in China.
The company has a large, open pathway to grow beyond China in emerging markets. This is important since 72% of frequent e-sports viewers live outside of the U.S. and Europe. The company is expanding aggressively in Asia-Pacific and Lain America with the logistical support of Tencent.
This is an aggressive idea that could make a nice move but based on recent lackluster performance I’m moving this to a hold. MOVE FROM BUY A HALF TO HOLD A HALF.
ICICI (IBN) shares were up a bit but not showing much direction.
The company’s most recent financial numbers were a mixed bag. While net interest income, revenue and loans and deposits all increased, earnings per share, while positive, declined relative to last year due to higher expenses.
Net interest income jumped 26% year-over-year and the net interest margin was a healthy 3.64%. The bank posted robust 22% loan growth in the retail segment with deposits rising 25% as credit quality improved.
IBN is a solid India play and there are still 191 million Indians without a bank account, which means a lot of potential new customers. This is a good entry point to take a stake in IBN if you have not yet done so. BUY A HALF.
Luckin Coffee (LK) shares were up 7% today and have, over the last two weeks, soared 49% on the back of a strong third quarter and investors taking note of strong institutional support of the stock.
Luckin’s SEC filings show that seven institutional investors collectively hold over 60% of shares.
In the third quarter, the number of stores/outlets grew to 3,680 and revenue was up nearly 70%, or 2.9 times the increase in store count. The company is also exploring introducing a revenue sharing franchise model.
Its strategy to compete with Starbucks is a combination of quality, convenience and affordability, with coffee prices that are roughly half of Starbucks’. Most of its shops are set up for takeaway and delivery.
Luckin is an aggressive stock carving out a niche in China’s high-growth coffee market. I like the trajectory of this young company and maintain a buy rating. BUY A HALF.
Marvell Technology Group (MRVL) shares have pulled back a bit this week after a nice move from 24 to 28 during the first two weeks in November.
Marvell is a leader in web-enabled devices that collect, send and act on data using sensors, processors and other hardware to talk to each other. Most of Marvell’s customers are located in Asia and they accounted for 85% of Marvell’s net revenue in fiscal year 2019.
Marvell is headquartered in Bermuda with operations in the U.S., China, Taiwan, Japan, India, South Korea, Vietnam and several other countries.
New markets are emerging in which Marvell has a first-mover advantage such as virtual reality, drones, data integration and consumer and industrial robotics. This is a quality company operating in high-growth, strategically important markets. I recommend that you begin with a half position if you have not yet done so. BUY A HALF.
NovoCure (NVCR) shares have jumped 10 points in the last week and have moved from 75 to 91 so far this month.
NVCR is a unique company in the biotech space marketing what is actually a device, Optune, to treat cancer by way of mechanically disrupting cancer cell division.
Earnings were positive at $0.02 per share while the company posted its best sales quarter to date. Optune sales reached 492 million units, aided by the company gaining Medicare coverage in September.
Gross margins were firm at 75% and the balance sheet is strong with $313 million in cash and $143 million in long-term debt. I encourage you to begin with a half position if you have not already done so. BUY A HALF.
Rakuten (RKUNY) shares moved forward a bit this week though the stock is clearly performing below my expectations. This may be due to a Japanese economy that is growing slower and the fact that the company has delayed a 5G rollout.
Rakuten is a well-diversified conglomerate with tentacles throughout Japan and has plenty of running room for international expansion. Its loyalty membership program is more than 100 million strong and it is Japan’s #1 Internet bank, #1 credit card and one of the country’s leading travel platforms.
If you haven’t yet bought shares, this would be a good time to buy a half position since it is trading at just 9 times trailing earnings. BUY A HALF.
Rio Tinto (RIO) was added to the Explorer portfolio last week.
Founded in 1873 and headquartered in London, with half of its current operations in Australia, it’s one of the world’s premier multinational mining, metals and commodity firms.
Operating across 35 countries on six continents, Rio supplies the world with gold, diamonds, aluminum, copper, titanium, iron ore and other industrial metals.
In the first half of 2019, Rio’s cash flow from operations increased 22% to $6.4 billion compared to a year earlier. Underlying earnings jumped 12% to $4.9 billion and dividends and share buybacks increased. And pro forma net debt shrank 40%. Its balance sheet is much improved and it has $9.6 billion in cash.
As some key commodities such as copper seem to be starting an uptrend, Rio offers good value, currently trading for about seven times earnings, and offers a current dividend yield of 5.8%. BUY.
Sea Limited (SE) shares were up 3% this week, climbing over 37 for a 2019 high, and are already up over 300% for 2019.
Sea’s recent third-quarter numbers were impressive. Total revenue was $763.3 million, up 214.3% year-on-year, and quarterly active users reached 321 million, up 82%. Sea’s global hit game, Free Fire, recently celebrated its second anniversary and was the highest grossing mobile game in both Latin America and in Southeast Asia.
Sea is an aggressive idea focused specifically on Southeast Asian markets representing 650 million consumers. Finally, its e-commerce platform Shopee is being deeply discounted despite gaining ground in the fast-growing Southeast Asian market.
It makes sense to take a portion of these profits off the table and to have in place a trailing stop loss of 20% to lock in gains. New subscribers should purchase Sea up to 40 a share. BUY A HALF.
Stock prices are as of 2:30 p.m. November 21, 2019