Rating Changes: Grupo Televisa (TV): MOVE FROM HOLD A HALF TO SELL.
Happy New Year!
I want to first thank you for following the Explorer.
I’m looking forward to putting some new ideas in front of you in the coming year, but today, let’s take a look at how global markets fared in 2019.
For the most part, global stock markets performed strongly in 2019.
But if you dig a bit deeper, you will see sizable and interesting gaps between countries.
While the S&P 500 was up 29%, the Stoxx Europe index was not far behind, up 23%. Russia surged 41%, Ireland jumped 35%, and the Netherlands and Switzerland were both up 29%.
In Asia, Taiwan led the way, up 32%, while the Shanghai Composite increased 22% and the Nikkei 225 posted an 18% return. India and Southeast Asia lagged, up 7% and 5%, respectively. Hong Kong’s Hang Seng increased 9% amidst the country’s political upheaval.
The Emerging Market index (EEM) ended the year up 18% and in an uptrend that bodes well for 2020. In Latin America markets were uneven. Brazil increased 22% and Mexico was up 8%; Argentina was down 22% and Chile lost 19% in 2019.
I expect that the momentum of the winners will continue into 2020 but have found that the laggards can oftentimes perform well in “catch-up” mode.
As always, emerging markets will be at the core of the Cabot Global Stocks Explorer portfolio and the weaker U.S. dollar during the last quarter is one reason these markets have gained momentum.
While I’m optimistic, there are some reasons to remain cautious since there are speed bumps out there from Taiwan, North Korea, and Hong Kong to the recent Iraq/Iran flare-up, which could be with us for a while.
Electric Vehicles in 2020
One of the key stories of 2020 and the next decade for that matter is how fast production of electric vehicles (EVs) will ramp up.
The key issues are range, ease of recharging and cost.
All are going the right direction and faster than many industry experts expected.
The average range of EVs—largely determined by their batteries’ size and energy density—has been climbing steadily, up about 20% annually for top-selling EVs since 2011, according to the U.S. Department of Energy.
In terms of charging batteries, in the past decade Tesla took the lead in creating its Supercharger network, now totaling 1,636 stations worldwide, including 741 in the U.S. Fast-charge service provider Electrify America said it will have over 2,000 units in operation by the end of 2019, at nearly 500 locations in 42 states.
In 2010, the average cost of a lithium-ion battery pack ran about $1,100 per kilowatt-hour. In 2019, the cost fell to $156/kWh, an 87% drop from 2010, and a 13% decline from 2018, according to Bloomberg.
Tesla is delivering its first made-in-China Model 3s this week and will shortly be making 1,000 vehicles a week. Its Gigafactory Shanghai plant is the first foreign wholly owned auto plant in China.
Vanguard Goes to China
Vanguard Group is close to launching its first business for China’s growing investing class: a robo-advisor that will help Chinese investors pick mutual funds.
Vanguard has paired up with Ant Financial Services Group’s 900 million Chinese consumers who use its financial payment platform Alipay.
The service will soon allow even small investors to build investment portfolios from 5,700 Chinese mutual funds that are offered for sale by Ant.
EXPLORER PORTFOLIO UPDATE
It was a relatively quiet week for the Explorer portfolio with no major moves either way. Virgin Galactic took a breather after a nice run, Luckin Coffee jumped from 34 to 40 and Sea Limited also broke 40 for a new all-time high—surging 5% over the last two days.
Alibaba (BABA) shares pulled back from their all-time high of 217 to settle at 212 this week. For a company of its size, BABA is a remarkable growth stock and is a great core holding for those looking for exposure to the rising Chinese consumer class. I would still be a buyer at these levels, as the stock is perhaps the best conservative big China consumer play out there.
The company’s most recent earnings report was impressive (sales up 40%), and its annual Singles’ Day sales event in November was a smash hit ($38 billion of merchandise sold). BUY.
Cosan (CZZ) shares were up only modestly in the company’s first week in the Explorer portfolio. Cosan makes sugar and ethanol but has expanded into a number of other related industries and its stock is in a strong uptrend.
Cosan offers a nice blend of emerging growth and Western management with a diversified portfolio of fuel distribution, sugar production, ethanol and electricity, rail transportation, warehousing, as well as the distribution of natural gas.
Its most recent quarter indicated that momentum is accelerating with net profits up 790% year over year. The stock is trading at just 12 times trailing earnings and perhaps 10 times on a forward basis. BUY A HALF.
DBS Bank (DBSDY) shares have held up well recently in spite of the fact that Southeast Asia has underperformed this year by a substantial margin.
This has been largely a dividend and income play with dividends more than doubling from 2014 to 2018. I’m banking on some catch-up growth in the stock price in 2020.
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 12 times trailing earnings.
I encourage you to buy at these levels for a great core holding and play on Southeast Asian growth. BUY A HALF.
Freeport-McMoRan (FCX) shares, along with Rio Tinto, treaded water this week. This is a play on recovering sentiment in iron and copper. Over the last 25 years, FCX has moved with copper prices 88% of the time.
The company primarily explores for copper, gold, molybdenum, silver, and other metals primarily in Indonesia but also in Chile, Peru, New Mexico and Colorado. It is the world’s most significant copper producer.
I encourage you to buy FCX if you have not already done so. BUY A HALF.
Grupo Televisa (TV) has been underperforming as Mexico has been out of favor. We will move this to a sell but may come back sometime in 2020. MOVE FROM HOLD A HALF TO SELL.
Luckin Coffee (LK) shares continued their strong momentum, moving from 34 to 40 over the past week. LK has jumped 25% over the past two weeks.
Some more conservative investors may wish to take some profits off the table at these levels. More aggressive investors should keep all their shares but may wish to put in place a stop-loss at 30.
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. BUY A HALF.
Marvell Technology Group (MRVL) shares were flat this week.
Our 5G play, Marvell recently sold its Wi-Fi business to NXP Semiconductors 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 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 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 gave back all of last week’s nice gains, ending the year at 84.
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 a half position if you have not already done so. BUY A HALF.
Rakuten (RKUNY) shares are trading where they were a month ago and have been largely lackluster since they delayed the rollout of 5G services into 2020.
Rakuten is a well-diversified conglomerate with tentacles throughout Japan, and it 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.
This stock is cheap, trading at just under nine times trailing earnings. So I’m keeping it at buy for now, but we’ll have to see some movement soon to keep the stock in the portfolio. BUY A HALF.
Rio Tinto (RIO) shares, like Freeport, were flat this week.
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 at about seven times earnings, and offers a generous dividend yield of 5.8%. BUY.
Sea Limited (SE) shares advanced 5% in the last two days to break 40—an all-time high for the stock.
Sea is an aggressive idea focused specifically on Southeast Asian markets representing 650 million consumers.
The company is primarily known for gaming and its e-commerce platform Shopee is being deeply discounted despite gaining market in the fast-growing Southeast Asian market.
As with Luckin Coffee, conservative investors may want to take some partial profits in Sea while aggressive investors should keep all shares, though putting in place a trailing stop-loss of 20% makes sense. BUY A HALF.
Virgin Galactic (SPCE) shares took a well-deserved breather this week after surging 30% since being added to the portfolio three weeks ago.
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. A recent Morgan Stanley report compared the space tourism company to a biotech in terms of risk/reward.
The big payoff is down the road, with hypersonic point-to-point 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.
Although this stock has made a substantial move in the last three weeks, I would still be a buyer. BUY A HALF.
Stock prices are as of December 31, 2019 close