Move Icici (IBN) From Buy a Half To Hold a Half.
Japan a Laggard & Opportunity
We are so accustomed to looking at stocks and markets day by day that we sometimes miss the big trends as well as opportunities.
Below is a chart of the S&P 500 since 1990.
You can see how extraordinarily long this bull market has run over the last decade since its recovery after the global financial panic.
This raises the question—what can we expect from 2020 to 2030?
No one knows of course and we hope that our bull run continues but it might be smart to move some cash into markets that have been lagging.
The table below highlights that while Hong Kong and Germany (surprise) are close to matching America’s gains, Japan has been an absolute laggard.
We now have only one Japanese company, Rakuten, in the Explorer portfolio but I’ll be looking for others as we move into 2020.
Emerging markets have also lagged the U.S. market badly over the past decade. That has left them unloved, unappreciated and undervalued—a great indicator of future outperformance.
China & Trade
The phase-one trade “deal” between America and China didn’t move markets much for several reasons. Many are skeptical that it will be signed in January or that China will hit the (below) import targets. And even if this all comes together, it won’t have much positive impact on economic growth.
In addition, while U.S. exports and imports have both been hit pretty hard in 2019, imports from other Asian countries have picked up the slack as you can see in the below chart.
EXPLORER PORTFOLIO UPDATE
Alibaba (BABA) shares have moved from 198 to 210 over the last two weeks following its recent positive earnings report (sales up 40%), and big annual Singles Day sales event ($38 billion of merchandise sold).
For a company of its size, BABA is posting impressive numbers and is a core holding for those looking for exposure to the rising Chinese consumer class.
Phase-one trade deal has not helped much as many are still skeptical but I would still be a buyer as the stock is perhaps the best conservative big China play out there. BUY.
DBS Bank (DBSDY) shares are proving to be pretty boring, moving again modestly forward this week. 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. 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 twelve times trailing earnings.
I encourage you to buy at these levels for a great core holding and play on Southeast Asia. BUY A HALF.
Freeport-McMoRan (FCX) is a play on recovering sentiment in iron and copper that didn’t do much in its first week in the portfolio.
Headquartered in Phoenix, Arizona, the company manages mineral properties in North America, South America and Indonesia. The company primarily explores for copper, gold, molybdenum, silver, and other metals primarily in Indonesia as well as in Chile, Peru, New Mexico and Colorado. It is the world’s most significant copper producer.
Copper is in strong demand across the economy and is beginning an uptrend so I encourage you to buy a half position. BUY A HALF.
Grupo Televisa (TV) shares have moved modestly for us but this week underperformed. We’ll give this stock a few more weeks to see if it can develop an uptrend as emerging markets move forward.
This stock could gain traction since TV is like having CBS, Comcast and 21st Century Fox tied together in one package. The company owns 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.
All of this is very positive for TV and I continue to rate this a buy. BUY A HALF.
ICICI Bank (IBN) shares have performed decently but based on its rich valuation and the obvious slowing of the India economy, I’m moving this to a hold.
Its most recent quarter showed net interest income jumped 26% year over year and 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 in and there are still 191 million Indians without a bank account, which means a lot of potential new customers. MOVE FROM BUY A HALF TO HOLD A HALF.
Luckin Coffee (LK) shares were up 5% this week finishing just under 32.
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. Its strategy to compete with Starbucks is a combination of quality, convenience and affordability, with most of its shops 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 for aggressive investors. If you have owned LK for a while, feel free to take partial profits to lock in some gains. BUY A HALF.
Marvell Technology Group (MRVL) shares are treading water but I’m banking on the stock being propelled by 5G momentum by Samsung and Nokia, which both use Marvell’s 5G chips.
Marvell recently sold its Wi-Fi business to NXP and is a leader in web-enabled devices that collect, send and act on data using sensors, processors and other hardware.
New markets are emerging in which Marvel 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 and the company is boosting its stock buyback program. I recommend that you buy a half position if you have not already done so. BUY A HALF.
NovoCure (NVCR) shares turned around last week going from 76 to 82 after making a nice move from 75 to 96 in the first three weeks of November.
NVCR is a unique company in the biotech space marketing what is actually a device, Optune, to treat cancer in a revolutionary way by mechanically disrupting cancer cell division.
This process uses electrical fields to non-invasively disrupt cancer cell division and growth. Sales are expected to be up 30% in 2020 with positive earnings.
In its most recent quarter, gross margins were firm at 75% and the balance sheet is strong with $313 million in cash. I encourage you to begin with half position if you have not already done so. BUY A HALF.
Rakuten (RKUNY) shares were flat again this week as we wait for the company’s rollout of 5G services in early 2020.
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 and #1 credit card.
If you haven’t yet bought shares, this would be a good time to buy a half position since it is trading at just under 9 times trailing earnings. BUY A HALF.
Rio Tinto (RIO) shares were up incrementally this week as the company recently announced it is spending $1.5 billion to expand its Kennecott copper mine in Utah.
London-based Rio is one of the world’s premier multinational mining and commodity firms. Operating across 35 countries, it supplies the world with gold, diamonds, copper, titanium, iron ore and other industrial metals.
As some key commodities such as copper seem to be beginning 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 have gone from 27 to 37 over the past two months.
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 market 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. BUY A HALF.
Virgin Galactic (SPCE) shares have surged 30% since being added to the portfolio two weeks ago.
Boeing’s venture capital arm HorizonX took a $20 million minority stake in Virgin to help Richard Branson’s company develop a vehicle to travel Earth at hypersonic speeds.
The company has reservations from over 600 people in 60 countries, accounting for $80 million in deposits and $120 million in potential revenue. Sir Richard Branson confirms that space tourism flights will begin within a year and he expects profitability by 2021.
The cost of a Virgin flight on SpaceShipTwo, which can hold seven passengers and two pilots, is $250,000. I agree with a just released Morgan Stanley report that compares the space tourism company to a biotech in terms of risk/reward and that the big payoff down the road will be point to point hypersonic travel.
While a business jet takes 11 hours to fly from Los Angeles to Tokyo, a hypersonic vehicle traveling at five times the speed of sound could make the same journey in just two hours. BUY A HALF.
Stock prices are as of December 18, 2019 close