WHAT TO DO NOW: The Cabot Emerging Markets Timer is flashing a robust buy signal. So, following our rules, we’re edging steadily back into the market, increasing our exposure to strong growth stocks. Today, we are upgrading SSW from Hold to Buy and initiating positions in SBGL and TLK with recommendations to Buy a Half position of each stock.
Market Environment
Broad U.S. markets have been advancing since the middle of February, improving the intermediate-term trend of U.S. market to a positive reading. There hasn’t been much in the way of good economic news, but investors seem to have digested the available information about the state of the national and global economies and the fortunes of growth stocks and decided that it was time to do some buying.
The iShares MSCI Emerging Markets ETF (EEM) has staged a powerful three-day rally after seven weeks of choppy base building. EEM soared decisively above its 25- and 50-day moving averages and the 25-day looks set to get back above the 50-day unless there’s a drastic pullback. It’s a little worrisome that the Golden Dragon China ETF (PGJ) that follows Chinese ADRs is still languishing, but we’re getting plenty of confirmation of the new buy signal in the performance of our stocks.
We intend to ratchet up our exposure slowly but surely, which is why we’re recommending half positions in our two new buys. After today’s buys, we’ll be 50% invested, but don’t want to jump too fast or too far. We also have a couple of newly confirmed quarterly report dates (SSW on Monday and CTRP on March 16), with four companies in the portfolio without dates yet.
The major indexes opened the day down and headed lower, but rallied in the afternoon to finish the day with fractional gains. At the close, the Dow was up 44 points (0.26%), the S&P 500 gained 7 points (0.35%), and the Nasdaq rose 4 points (0.09%). The iShares MSCI Emerging Markets ETF (EEM) gained 36 cents (1.13%).
Recommended Stocks
Concord Medical Services (CCM 4.6) has been trading sideways in a tightening pattern since its big December rally. Earnings aren’t due out until the week of March 21, and that may provide the fuel for a breakout from this consolidation pattern. We’ll keep CCM on the watch list. WATCH.
Ctrip.com (CTRP 39) has announced that it will report Q4 and full-year 2015 results on Wednesday, March 16, after the market closes. Analysts are looking for the company to report a small loss on 47.3% revenue growth. The stock has been under pressure for two days without any news to offer an explanation, and we’re watching closely. We continue to believe that Ctrip.com’s buyout of Qunar and its partnership with Baidu (with its huge user base and resources) will drive earnings for many quarters to come. We’ll stick with our Buy a Half rating, but a move to near the stock’s February low at 36 will require serious scrutiny. BUY A HALF.
Grupo Financiero Galicia (GGAL 29) has dithered a bit over the past week, but is still sitting nicely atop its 25-day moving average. The company’s quarterly report on February 12 was well-received and GGAL picked up an upgrade from JP Morgan on Wednesday. Today’s news of a an agreement between the Argentinian government and a group of investors holding the country’s defaulted bonds may improve the country’s access to capital markets. And the prospect of the country’s upgrade by MSCI from a frontier market to an emerging market could also boost trading volume in the country’s ADRs. We’ll stick with our recommendation to Buy a Half position, but if we see any acceleration from these positive news stories, we’ll react accordingly. BUY A HALF.
Seaspan (SSW 18), which opened the year at 15 and fell below 14 in the middle of January, has now put on a burst of power. SSW retook its 200-day moving average for good in late February and the 25-day MA has now crossed back above the 200-day as well. With SSW now hovering around 17.5, and the company announcing that it will release Q4 results on Monday, March 7 after the close, it looks like time to put SSW (and its 9% dividend yield) back on Buy. BUY.
Sibanye Gold (SBGL 15) is riding a wave of rising gold prices to excellent gains. While rising gold prices are the main factor in SBGL’s advance, Sibanye Gold has excellent fundamentals going for it, as the company’s efficiency and cost controls provide an extra ounce of performance. We’re not huge gold enthusiasts, but there’s no denying the metal’s appeal. We will start a position in SBGL with a recommendation to Buy a Half position. BUY A HALF.
TAL Education (XRS 50) topped 50 and hit an intraday high near 53 on March 1, before a few days of selling pulled it back to where it began February. XRS looks just fine here. BUY.
Telekom Indonesia (TLK 51) pushed out to new all-time highs at today’s open, then spent most of the day giving back a portion of that advance. TLK has seen a couple of days of heavy volume buying just before the close of trading, which is often when institutional investors like to execute their trades. We like the stock’s action, and recommend taking a half position in TLK. BUY A HALF.
Volaris (VLRS 20) enjoyed a strong four-day rally in the middle of February, and after a three-day pullback, moved out to new highs earlier this week. The company’s earnings report on February 22 was met with one day of selling followed by a new rally. With good news in the can and a strong chart, we’ll keep VLRS rated Buy. BUY.
YY.com (YY 52) staged a free-fall and recovery on February 11, then powered back to its falling 25-day moving average. The company’s earnings report hasn’t been formally announced, but must be coming up soon. We’ll keep YY on the watch list at least until we see investors’ reaction to the report. WATCH.
Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |
| Concord Medical Services (CCM) | — | — | 4.60 | — | Watch | |
| Ctrip.com (CTRP) | 2/26/16 | 42 | 39 | -7% | Buy a Half | |
| Grupo Financiero Galicia (GGAL) | 2/26/16 | 30 | 29 | -3% | Buy a Half | |
| Seaspan (SSW) | 6/22/12 | 17 | 18 | 2% | Buy | |
| Sibanye Gold (SBGL) | New | — | 15 | — | Buy a Half | |
| TAL Education (XRS) | 12/18/15 | 48 | 50 | 4% | Buy | |
| Telekom Indonesia (TLK) | New | — | 51 | — | Buy a Half | |
| Volaris (VLRS) | 9/25/15 | 15 | 20 | 40% | Buy | |
| YY.com (YY) | — | — | 52 | — | Watch |