Cabot Emerging Markets Investor March 31, 2016
Paul Goodwin, Chief Analyst
WHAT TO DO NOW: The Cabot Emerging Markets Timer continues to give a Buy signal, so we’re maintaining our strategy of slowly increasing our exposure. Today, we have no changes to our portfolio.
Market Environment
U.S. markets have rebounded nicely. The S&P 500 has made up most of its late-December-through-mid-February correction, and by all appearances it’s ready to start chewing through the November–December area of overhead resistance. The Nasdaq, while also steaming higher, isn’t as far along as the S&P. All in all, it’s a good situation, helped by good employment numbers in the U.S. and reassurances from the Fed that interest-rate increases will be sparing through the rest of the year.
Both the iShares MSCI Emerging Markets ETF (EEM) and the Golden Dragon China ETF (PGJ) have experienced a quick pullback and a nice recovery. EEM is still a bit stronger than PGJ, but both ETFs are doing well and have climbed atop their 200-day moving averages. Our intermediate-term Emerging Markets Timer remains bullish, and having EEM and PGJ both surmounting their 200-day moving average is a good sign for the longer-term trend. Momentum is an important part of our strategy, and an uptrend with longevity is stronger than one without.
The major indexes were all up during the morning session, but dipped in the afternoon to close narrowly mixed. The Dow fell 32 points (0.18%), the S&P 500 lost 4 points (0.20%), and the Nasdaq rose a scant one point (0.01%). The iShares MSCI Emerging Markets ETF (EEM) was flat, down 0.03 cents (0.09%) to finish at 34.25.
Recommended Stocks
China Lodging Group (HTHT 38) hasn’t been generating headlines, but HTHT is on a roll. Maybe it’s the follow-on effect of the company’s well-received Q4 and 2015 report on March 10. Maybe it’s the continuing stimulation from the company’s $80 million share repurchase plan that was announced on March 17. Or, maybe it’s the fact that the stock was also just recommended by Cabot Stock of the Month! In any case, HTHT blasted off on Wednesday from a seven-day flat consolidation, tacking on a quick two points, then holding those gains on Thursday. We’ll keep HTHT rated Buy. BUY.
Concord Medical Services (CCM 4.9) reported its quarterly and annual results after the market closed on Monday and the reaction has been positive. Management discussed the upcoming start of construction on two new cancer hospitals in Shanghai and Guangzhou in partnership with MD Anderson Cancer Center. They also announced a private stock placement whose proceeds will be used to acquire cancer centers. There hasn’t been a ton of movement, but CCM trades in such a tight range that a move from its Tuesday open at 4.7 and its recent trading near 5 looked substantial. CCM has made three runs at resistance at 5, one in December, one in February and another earlier this month. It may be that this good quarterly report will finally do the trick and kick CCM out of its trading rut. We’ll keep it on our watch list until it jumps one way or the other. WATCH.
Credicorp (BAP 131) went through a sharp correction last week that pulled the stock from 134 to 124 in five trading sessions, which also caused it to dip below its 25-day moving average. That’s not negligible, but it’s also not unusual following a great run like the one BAP began at 85 in January. The stock bounced back strongly on Tuesday and Wednesday and still looks healthy. BUY.
Ctrip.com (CTRP 44) looks like it wants to consolidate for a while under resistance at 46, which is just fine. The volatility following the company’s Q4 and full-year 2015 results has quieted down and the stock looks stable. Investors will be looking for clues about the success of the Qunar merger, and any good news would be bullish. We will stick with our Buy a Half rating, but a successful run above 46 would tempt us to fill the position. BUY A HALF.
Grupo Financiero Galicia (GGAL 28) was moved to a Hold in last week’s regular issue as it has cooled off into a very tight sideways trading pattern. The only recent news was the announcement on March 29 that Credit Suisse was initiating coverage on the stock with a neutral rating. We’ll keep GGAL rated Hold a Half, but our patience won’t be infinite. HOLD A HALF.
Seaspan (SSW 18) made a monster move for a dividend-paying stock by soaring from 14 in January to a brief touch of 20 on March 18. The stock shed a full point on that day, and drifted back to 18 on March 24 before regaining traction. SSW is now trading calmly between 18 and 19 on low volume. At its higher price, SSW’s dividend annual dividend yield is down to 8%, but that’s still a great payout. BUY.
Sibanye Gold (SBGL 15) continues to trade sideways despite the recent weakness in gold prices. The company is getting support from the weakness of the South African Rand, which boosts its profits. A quick look at the SPDR Gold Trust ETF (GLD), which tracks the spot price of gold, will tell the story. We’ll stay on Buy. BUY.
TAL Education (XRS 50) has been volatile since the middle of December, staging four significant corrections but rebounding to new highs after each one. XRS pulled back from 54 on March 17 to 48 on March 28, but found support at its 50-day moving average, right where we said it should. XRS is pushing back toward 50, and looks fine. We’ll keep the Buy rating. BUY.
Telekom Indonesia (TLK 51) has made a habit since December of pulling back to below its 25-day moving average but finding support at its 50-day. And it’s doing it again. TLK hit a new all-time high on March 18 (intraday), then pulled back to 49 on March 29, where it tagged its 50-day and bounced back. TLK may pause for a while, given its big run in recent months, but its uptrend is intact, so we’ll keep our Buy a Half recommendation. BUY A HALF.
Volaris (VLRS 21) traded sideways from the middle of February to the middle of March, then got a burst of energy from its rising 25-day moving average. VLRS pushed out to new all-time highs on Wednesday, but is extending the basing structure it started in late February. Volaris’ management foresees a continuation of the rise in Mexican air travel well into the future, so VLRS looks good here. BUY.
YY.com (YY 62) is continuing its recovery from its December–February free-fall. The stock is well above its moving averages, which is positive. But after a long period of decline that began in September 2014, we’re being cautious with YY. At a minimum, we want to see the stock retake its December high at 65. Yes, we’re being conservative here. Many of our stocks are doing well, but not busting big moves higher. We have plenty of money at work, and will recommend YY when we feel the risk/reward balance is better. WATCH.
Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |
| China Lodging Group (HTHT) | 36 | 8% | Buy | |||
| Concord Medical Services (CCM) | — | — | 4.99 | — | Watch | |
| Credicorp (BAP) | 3/11/16 | 129 | 131 | 2% | Buy | |
| Ctrip.com (CTRP) | 2/26/16 | 42 | 44 | 5% | Buy a Half | |
| Grupo Financiero Galicia (GGAL) | 2/26/16 | 30 | 28 | -6% | Hold a Half | |
| Seaspan (SSW) | 6/22/12 | 17 | 18 | 6% | Buy | |
| Sibanye Gold (SBGL) | 3/4/16 | 14 | 15 | 5% | Buy | |
| TAL Education (XRS) | 12/18/15 | 48 | 50 | 3% | Buy | |
| Telekom Indonesia (TLK) | 3/4/16 | 52 | 51 | -2% | Buy a Half | |
| Volaris (VLRS) | 9/25/15 | 15 | 21 | 44% | Buy | |
| YY.com (YY) | — | — | 62 | — | Watch |