Finally, U.S.-China (Phase 1) Trade Deal is Signed
Portfolio Changes:
DBS BANK (DBSDY): MOVE FROM HOLD TO SELL
RAKUTEN (RKUNY): MOVE FROM BUY TO HOLD
The big news pertaining to global investing is the signing in Washington yesterday of the phase-one “truce” trade deal between America and China.
In effect, it kicks the hard stuff down the road—and there will surely be some hard feelings if China is unable or unwilling to meet its broad, ambitious and vague promises for more purchases of U.S. agricultural and manufacturing products.
The net impact of the back and forth between these two global powers in 2019 was that American exports to China fell 21% and Chinese exports to America fell 13%.
Importantly, Beijing did not pledge to refrain from hacking companies or curtailing subsidies to favored industries and companies.
Still, this pause in the trade conflict is good for markets and at the very least puts it on the back burner to simmer for a while.
As a result, the tone of the market is good, carrying over some momentum from 2019.
The Cabot Global Stocks Explorer portfolio is doing well in 2020 with Virgin Galactic and Luckin Coffee leading the way; Sea Limited, meanwhile, has tripled in the last year.
In other important Asia news, Taiwanese president Tsai Ing-wen won a landslide victory to clinch a second term in elections Saturday. Her victory is the fourth time since 2000 that her Democratic Progressive Party—which advocates for Taiwan’s formal independence—has secured the presidency.
“Taiwan is part of China,” said Foreign Ministry spokesperson Geng Shuang after the vote. China, which claims Taiwan as part of its territory, cut off all contact with Tsai’s government after she declined to endorse the “one-China” policy following her inauguration in 2016.
EXPLORER PORTFOLIO UPDATE
Alibaba (BABA) has developed a nice uptrend since last August, moving from 159 to 225.
The next earnings release is particularly important because it will show results for the most important quarter of the year. Because of the seasonality of shopping, Alibaba generates approximately 30% of yearly profits in the fourth quarter.
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. BUY
Cosan (CZZ) shares added a point this week to close at 22.
Cosan, based in Brazil, offers a diversified portfolio of fuel distribution, sugar production, ethanol and electricity, rail transportation, warehousing, as well as natural gas distribution.
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) is the highest quality bank in Asia but its shares have been clearly underperforming. This has been largely a dividend and income play with dividends climbing by over 100% from 2014 to 2018.
Though this is a great long-term core holding for any investor, because of its lack of momentum, I’m moving this to a sell to make room for new ideas with more upside potential. MOVE FROM HOLD TO SELL
Freeport-McMoRan (FCX) shares didn’t do much 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 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.
I encourage you to buy FCX if you have not already done so. BUY A HALF
Luckin Coffee (LK) shares have jumped 55% to 46 in the last month and have more than doubled in the last six months.
Luckin raised this week a combined $778 million from an additional share sale and convertible bond offerings. Credit Suisse issued an update yesterday.
The company recently unveiled Luckin Coffee Express, a vending machine for brewed coffee and snacks. The company also announced that it ended 2019 with about 4,500 outlets, which is a larger number than Starbucks.
More conservative investors should take some profits off the table but the most aggressive investors should keep all their shares. BUY A HALF
Marvell Technology Group (MRVL) shares have not done much over the last month in a pretty good market.
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 are up 10 points in the last two weeks and up three this week, likely helped by its presentation at the JP Morgan Healthcare Conference on Monday. We’ll give it some more time.
NVCR is a unique company in the biotech space marketing a device, Optune, that treats cancer in a revolutionary way by mechanically disrupting cancer cell division using electrical fields.
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
Ping An (PNGAY), the most recent addition to the portfolio, is a Chinese company that provides financial products and services for insurance, banking, and asset management but is best known for its life, health and property insurance business.
It is also evolving into more of a financial technology (fintech) play and its Co-CEO, a former McKinsey consultant, is heading up the effort to transform the company into more of a blend of financial services and technology. This week Ping An announced a partnership with Intel to establish a joint laboratory, cooperate on products and technology, and form a joint project team in areas of high-performance computing, including storage, network, cloud, artificial intelligence (AI) and security.
Ping An is a dominant player in this space with over 200 million retail customers and ranked seventh on the Forbes Global 2,000 list and 29th on the Fortune Global 500 list.
The numbers for Ping An are great; last quarterly earnings were up 49.7%, the company delivers a 24% return on equity and the stock is only trading at 14 times trailing earnings and nine time projected earnings.
I recommend you begin 2020 by adding a full position of Ping An to your portfolio. BUY
Rakuten (RKUNY) shares are trading where they were a month ago and have been lackluster since they delayed the rollout of 5G services into 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.
This stock is cheap, trading at just under nine times trailing earnings, but pending an uptrend, I’m moving it to a hold. MOVE FROM BUY A HALF TO HOLD A HALF
Rio Tinto (RIO) shares, like Freeport’s, were flat again 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 just seven times earnings. It also boasts a dividend yield of 5.1%. BUY
Sea Limited (SE) shares held at 40 this week—an all-time high for the stock, which has tripled in the last year.
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.
More conservative investors may want to take some partial profits in Sea while aggressive investors should keep all shares. This company has the potential to be an enduring growth stock but you may wish to put in place a trailing stop-loss of 20% to protect profits. BUY A HALF
Virgin Galactic (SPCE) shares are up 55% over the last month.
Last week the company presented at the Merrill Lynch Defense and Aerospace Forum and will be will be presenting today at the UBS Future of Travel Conference.
The company has reservations from over 600 people in 60 countries, accounting for $80 million in deposits and $120 million in potential revenue.
Founder Sir Richard Branson confirms that space tourism flights will begin within a year and he expects profitability by 2021.
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.
This is an aggressive idea that has made a strong move since being added to the Explorer portfolio but I believe there is more upside as the company stays in the media spotlight throughout 2020. BUY A HALF
