Portfolio Changes
Alibaba (BABA) moves from the Watch List to a Hold recommendation
Global X Cybersecurity ETF (BUG) moves from Buy a Half to Hold
Liquidity and Geopolitical Risk Everywhere
U.S. and global markets continue to be fueled by substantial amounts of liquidity washing over the world. According to Lipper, the amount in American money market funds has reached $4.6 trillion. This is a record going back to 1992.
Some Chinese companies concerned about being de-listed from the NYSE, are looking to Hong Kong despite the political turmoil. China’s JD.com Hong Kong offering was 179 times oversubscribed and it was up on its first day of trading yesterday.
There are days when the market value of Microsoft (MSFT) is higher than the largest 100 companies listed on the London Stock Exchange that make up the FTSE 100 index. This is amazing since many of these companies are quite substantial such as Royal Dutch Shell (RDS) and Unilever (UL).
And the market value of the companies listed on the NYSE and Nasdaq represent more than 50% of all the publicly listed companies in the world—also quite extraordinary.
We need to stay positive in line with Cabot indicators but also keep some powder dry in case markets reverse. Our emerging markets signal (EEM) is still positive.
There is also a fair amount of geopolitical risk out there. The latest global conflict? China and India are having their first deadly clash in 45 years. Taiwan, North/South Korea, Hong Kong and the South China Sea are just some of the potential flash points. This is why we have a nice cash position in our Cabot Global Stocks Explorer portfolio and added the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) as a hedge last week.
The portfolio is doing fine, with Sea Limited (SE) shares having now jumped from a 2020 low of 38 in March to 107, and from 89 to 107 just this past week.
Cybersecurity play Cloudflare (NET) broke through resistance and was up 13% yesterday. Virgin Galactic (SPCE) was uneventful this week, closing at 15.
I know some of you own NIO (NIO), which is featured in one of my special reports. NIO has doubled over the last month to reach 6.7 as its sales have been above expectations and it has shored up its finances through a deal with a provincial government.
NIO recently raised some cash from an offering that, while dilutive, lowered risk. The Tesla stock rocket has amped up interest in electric vehicle markets. China is already and will always be the biggest EV market in the world. This is Tesla’s big bet.
We’re not adding NIO to the Explorer portfolio today. But we’ll be keeping a close eye on it.
Position Updates
Cloudflare (NET) shares, up 23% in May, were up another 13% yesterday alone and broke through resistance to move from 29 to 36. 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. BUY A HALF
DBS Bank (DBSDY) shares pulled back to 61 this week after making a nice move from 57 to 67 the previous two weeks.
One area of growth for DBS Bank is digital banking—a profitable trend since DBS’s digital customers now 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 moved sidewise this week and are up 13% over the last month. This stock is a “sleep well at night” stock rather than a growth stock.
Fanuc is a conservative robotics play as 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 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 it offers a decent dividend as well. This is a “maker of robots that make robots.” BUY A HALF
Gilead Sciences (GILD) shares were flat this week as markets wait for the pricing of its COVID-19 drug as well as news on its drugs pending in the FDA regulatory pipeline.
While the focus right now is on remdesivir, which has received emergency approval by the FDA to treat severely ill COVID-19 patients, Gilead Sciences is one of the leaders in the market for HIV treatment. The strongest element here is Gilead’s HIV business as sales of Biktarvy more than doubled to nearly $1.7 billion in the first quarter year on year. Gilead has nearly 50 additional drug candidates in the pipeline and almost 30 commercialized products in areas including HIV, oncology, and cardiovascular disease.
More growth is ahead for Gilead, though, as the company awaits regulatory decisions on filgotinib for rheumatoid arthritis. FDA approval may come as early as this month, since Gilead presented the drug for priority review in December. The company is preparing for a possible launch in the second half of 2020 and is aiming for approval in Japan and Europe later this year.
A SVB Leerink analyst recently upgraded Gilead to outperform stating that sales of remdesivir could reach $2 billion this year and $7.7 billion in 2022. If you haven’t yet purchased shares, I encourage you to buy a half position. BUY A HALF
Global X Cybersecurity ETF (BUG), a basket of cybersecurity stocks of companies that prevent cyber attacks, was flat again this week while NET regained its momentum.
I have no problem with subscribers holding on to this ETF as a long-term core holding but it requires little update week to week so I’m moving this to a hold.
This is a play on concerns over online security as cybercrime has reached an all-time high, with damages from these activities expected to cost $6 trillion annually by 2021. This ETF has 29 holdings and the top 10 stocks represent roughly 60% of the total market value. Seventy-four percent of the companies are incorporated in America, followed by 13% in Israel and 8% in Japan MOVE FROM BUY A HALF TO HOLD
Sea Limited (SE) shares have now jumped from a 2020 low of 38 in March to 107, going from 89 to 107 just this past week.
While e-commerce and gaming are Sea’s biggest revenue contributors by a large margin, SeaMoney is one of the fastest-growing digital financial service networks in Southeast Asia. Its offerings include e-wallet services, payment processing, micro-lending, and related digital financial services. These services and products are available in various markets across Southeast Asia under AirPay, ShopeePay, Shopee PayLater, and other related brands. Sea is now a hold but we will be buyers if the stock pulls back. If you have not already sold some your shares, I strongly suggest you do so now to lock in profits. HOLD HALF
Trip.com (TCOM) shares dipped from 26 to 25 this week. The company is a China 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.
TCOM 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
VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) shares, our most recent recommendation, retraced a bit from 36 to 35. REMX is an exchange-traded fund (ETF) launched in 2010. It is fairly concentrated, with 21 holdings; the top 10 holdings represent 61% of assets and more than half of the holdings are Chinese companies.
REMX surged 82% in 2017, pulled back 45% in 2018 – returning to its 2017 low, and now it is in an uptrend again. The electric vehicle revolution alone could power this ETF forward but the U.S.-China trade conflict could really launch this recommendation into space.
China could cut back on the amount of rare earths it allows into global markets and specifically to American or Japanese companies, it would likely send REMX soaring. REMX is also a great hedge on U.S.-China rising tensions and political risk.
BUY A HALF
Virgin Galactic (SPCE) shares were flat this week. I recommended selling half your shares a few weeks back for a 146% gain so we are now in a strong position to ride this compelling story forward.
One hiccup in recent weeks was that a Sir Richard Branson-controlled firm, Vieco 10, has sold 37.5 million Galactic shares, raising $560 million but cutting the tycoon’s stake from over 50% to around 30%. The proceeds were needed to shore up some of Branson’s ventures negatively impacted by COVID-19.
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 yet bought more shares in this compelling story, I encourage you to do so. BUY A FULL POSITION
Alibaba (BABA) shares moved from 217 to 223 this week as the company announced it is recruiting as many as 100,000 content creators who would help the Chinese giant promote products sold on its international marketplace, AliExpress.
Alibaba Cloud is also hiring up to 5,000 engineers this financial year to fuel growth in areas including network, databases and artificial intelligence. The recruitment came after Alibaba committed earlier this year to spending $28 billion over the next three years to build more data infrastructure amid increased demand for services like video conferencing and live streaming as businesses. BABA’s e-commerce sales rebounded nicely in May in the range of 25% to 40% and the stock has a consensus six-month target of around 250. Ninety-three percent of BABA’s revenue is derived within China.
Bottom line: Things are looking good for Alibaba, so let’s upgrade it from our “Watch List” to a “Hold” recommendation. MOVE FROM WATCH LIST TO HOLD
