Portfolio Changes
Upgrade Virgin Galactic (SPCE) from Buy a Half to Buy a Full Position
Explorer in Brief
Our positions did well this week. As usual, Sea (SE) led the way, up 12.8% this week and 60% over the last month. Singapore’s DBS Bank (DBSDY) was up 9.2% yesterday and 14.5% for the week. Japan’s industrial robot maker Fanuc (FANUY) has surged 16% in the last month. And who says ETFs are boring? Our cybersecurity ETF (BUG) was up 9% this past week.
Markets Continue to Move Higher; Big Payday for Musk
Why are markets continuing to move upward in the midst of economic and political upheaval? The short answer is don’t fight the Fed, which has made it abundantly clear that it will do anything necessary to keep this economy and market moving.
This past week was certainly a good one for Elon Musk, and not just because of SpaceX’s successful crewed spacecraft launch. Tesla awarded Musk more than $1.5 billion in stock as part of a pay package, with incentives that could ultimately be worth some $55 billion.
China is also moving in on space as SpaceNews reports that it plans to launch the first module of its new space station next year, with a total of 11 launches needed to complete the station by 2023.
And as the debate over China stocks listing on U.S. markets continues, Luckin Coffee (LK) got back to 2.6 after rising 10% yesterday. This is right about where I recommended a sell a couple of weeks ago. There was a detailed and damning article in The Wall Street Journal about what went wrong and how sales and expenses were manipulated. Optimists still see value here and believe it is building a base.
Meanwhile, one of China’s biggest chipmakers, Semiconductor Manufacturing International Corporation, filed for an IPO in Shanghai that could raise $2.8 billion.
Southeast Asia’s U.S.-China Angle
Now let’s turn to why I believe that Southeast Asia deserves more attention from both a strategic and investment point of view. Our Explorer portfolio has two direct Southeast Asia plays, DBS Bank (DBSDY) and Sea Limited (SE), which was founded by Singapore-based ethnic-Chinese entrepreneurs and backed by Tencent.
South of China and East of India, the expansive, high growth, and strategically important ASEAN region of 645 million optimistic, youthful, tech-savvy consumers offers a wealth of entrepreneurial talent and an abundance of commercial opportunities. Sea is an e-commerce leader in seven of these markets: Taiwan, Singapore, Thailand, Indonesia, Vietnam, the Philippines and Malaysia, which together represent a consumer base roughly equal to the size of North America
This is why a wave of capital from America, China, Europe, Japan, India and South Korea is chasing significant opportunities in the region. Over the past few years, Southeast Asia has attracted more foreign direct investment than China. And China has become the largest investor in Southeast Asia as well as its largest trading partner this year, surpassing the European Union.
I felt so strongly on this issue that I launched the Southeast Asia Council (http://www.aseancouncil.com) to try to highlight the importance of and opportunities in the group of 10 countries that make up what is commonly referred to as ASEAN (Association of Southeast Asian Nations).
In this age of U.S.-China rivalry, Southeast Asia will be a key part of the chessboard. More than 9,000 miles from Washington, D.C., it is an away game for America and a home game for China. China also has an edge due to the influence of ethnic Chinese based in Southeast Asia.
According to The Economist’s analysis of data from Forbes magazine, last year more than three-quarters of $369 billion in Southeast Asian billionaire wealth was controlled by overseas Chinese. For example, Malaysia’s Robert Kuok oversees an empire that spans everything from sugar to Shangri-La hotels; and 15 of 17 Filipino billionaires were ethnic Chinese.
These leading families, known as the “Bamboo Network,” or a network of firms with Chinese roots united by Confucian values of diligence and thrift, have deep roots in the region with some Chinese settlers arriving as early as the 15th century and others fleeing south to escape poverty and political turbulence in the early 1900s.
Around the region such links helped tycoons build vast, vertically integrated groups as Asia boomed in the 1990s.
Position Updates
Cloudflare (NET) shares edged higher this week and were up 23% in May.
This aggressive cybersecurity recommendation went public last year. The company is growing fast and appears to be gaining market share and some analysts expect its revenue to double by 2022. If you have not yet invested in NET, I suggest you do so and consider pairing it with the below more conservative cybersecurity play, the ETF BUG. BUY A HALF
DBS Bank (DBSDY) shares finally developed a strong uptrend, up 9.2% yesterday and 14.5% for the week.
Digital banking is a profitable trend, as DBS’s digital customers make up more than 50% of its retail and small business base in Singapore and Hong Kong, up 25% in the last two years. DBS is one of the largest banks in Southeast Asia, with a presence in 18 high-growth markets across Greater China, Southeast Asia, and South Asia/India.
I encourage you to aggressively buy DBS at these levels. BUY A HALF
Fanuc (FANUY) shares were once again uninspiring this week but are up 16.2% over the last month. Fanuc is the world’s leading manufacturer of computerized numerical control (CNC) devices that are used in machine tools and also serve as the “brains” of industrial robots that are used in manufacturing all sorts of high-value products, including other robots.
Fanuc offers investors a balance sheet with zero debt and a sizable $7 billion in cash. Profit margins are impressive and Fanuc has also bought back more than 70 million shares in recent months. In short, Fanuc is a high-quality play on a growth trend. I encourage you to buy this conservative robot play if you have not already done so. BUY A HALF
Gilead Sciences (GILD) was just added to the Explorer portfolio last week as remdesivir, which has received emergency approval by the FDA to treat severely ill Covid-19 patients, continues to attract media attention. Shares moved to almost 78 before pulling back to 74.4.
Yesterday, SVB Leerink analyst Geoffrey Porges upgraded Gilead to outperform stating that sales of remdesivir could reach $2 billion this year and $7.7 billion in 2022. Porges, who also raised his price target on Gilead Sciences to 94 from 85, said that he expected commercial sales of the drug to be priced at roughly $5,000 per course of treatment in the U.S. and $4,000 in Europe. BUY A HALF
Global X Cybersecurity ETF (BUG), a basket of cybersecurity stocks, broke above 20 yesterday and was up 9% for the week.
This ETF has 29 holdings and the top 10 stocks represent roughly 60% of the total market value of the basket. Seventy-four percent of the companies are incorporated in America, followed by 13% in Israel and 8% in Japan. This ETF can be seen as a more conservative play on cybersecurity and can be paired with the above more aggressive Cloudflare (NET) recommendation for the best of both worlds. BUY A HALF
Sea Limited (SE) shares continue to surge, closing at 88 yesterday. Sea is up 60% in the last month and 12.8% in the last week.
I have already recommended selling a half position for a gain of 310%, and it’s still a good time to sell some shares to lock in some gains if you have not already done so.
Sea’s business begins with e-commerce and payments in Asia but what’s catching fire around the world, including America, are the company’s Garena mobile video games. Sea’s game Free Fire is a standout performer; it’s the highest-grossing mobile game not only in Southeast Asia and Latin America but the world. And it’s still growing by leaps and bounds: In the first quarter of 2020, the number of daily active users jumped from 60 million to 80 million.
Sea has been an incredible stock and clearly has momentum but it still has not made a profit. This is why I have been encouraging you to sell some shares to take profits off the table. I still like and believe this could be an enduring growth stock but it may have gotten a bit ahead of itself so I rate it a hold at this time. HOLD HALF
Trip.com (TCOM) shares were up 12% last week as it reported first-quarter financials.
As expected, the company suffered an operating loss of $211 million in the first quarter of 2020, compared with a $123.7 million profit a year earlier, on revenue of $163 million.
But CEO Jane Jie Sun said tourist numbers for the Labor Holiday in China doubled compared with the Qingming Festival in April. Among other bright spots, hotel bookings from travelers who live in that city or province, as well as attraction tickets and car rentals are nearing a full recovery. Domestic travel is picking up in certain international markets such as South Korea.
The company is a travel service provider that specializes in ticketing, reservations, and tours as well as aggregating hotel and transport information. Trip began 2020 with a strong tailwind as its fourth-quarter 2019 net income soared from $161.7 million to $1 billion. The company has enormous reach and scale in China as well as overseas, providing reservation services for more than 1.4 million hotel and hostel properties, and more than 1.2 million vacation rental properties around the world.
This is an aggressive idea with considerable uncertainty but I believe there is enough evidence of a rebound in domestic travel to warrant a half position. BUY A HALF
Virgin Galactic (SPCE) shares lost a little ground this week and are flat over the past month. Richard Branson’s sale of 2.6 million shares, which netted in the neighborhood of $500 million and reduced the founder’s stake by about 22%, has taken some steam out of this story.
Billing itself as the “First and Only Public Company Focused on Commercial Human Spaceflight,” this story is compelling, with a first-rate management team. Below is a chart highlighting how the stock has been a bit volatile.
I recommended selling half your shares a month ago for a 146% gain so we’re now in a strong position to ride this momentum forward.
Galactic plans to send groups of paying customers on brief flights to the edge of space. Perhaps even more important to its future than space tourism is its plan to launch point-to-point hypersonic flights. SPCE still plans to make its first commercial space-tourism flight this year, and took a step forward with two test flights from its New Mexico spaceport in the first quarter.
If you have not stepped up yet to buy more shares in this compelling story, I encourage you to do so and I’m moving my buy rating from a half to a full position for aggressive investors. MOVE FROM BUY A HALF TO BUY A FULL POSITION
WATCH LIST
Alibaba (BABA) shares retraced again this week, going from 198 to 218. Given the headwinds of potential delisting, rising U.S.-China tensions and the fact that this company has gotten so big that sizable upside potential is limited, we need to watch to see if this stock gets through resistance levels.
