Market Environment
The first few days of May were a trying time for iShares MSCI Emerging Markets ETF (EEM), which dipped from its 34.5 April close to 32 on Monday. This brought EEM below its 25- and 50-day moving averages, triggering a new sell signal from the Cabot Emerging Markets Timer. We responded by selling one of our weakest holdings, taking partial profits in another and putting two more on hold. EEM has recovered for a few days, but is still decisively in negative territory. With five of the companies in our portfolio yet to release quarterly results, we’re continuing to be cautious, but are only selling one additional stock this week (Sibanye Gold). There hasn’t been any blockbuster news in either the U.S. market or emerging markets, so most of the big moves in growth stocks are coming from quarterly reports or other company-specific news.
The major indexes opened in the black, but slipped into negative territory, bottoming around Noon, then improving in the last couple of hours to finish flat, but mixed. The Dow rose 9 points (0.07%), the S&P 500 lost less than one point, and the Nasdaq shed 23.4 points (0.49%) The iShares MSCI Emerging Markets ETF (EEM) dropped 0.10 points (0.3%) to finish at 32.85.
Recommended Stocks
China Lodging Group (HTHT 35) reported its Q1 results after the close on Wednesday, and the news was good, with a 14% jump in revenue and a stunning 1,800% pop in earnings (a result of strong performance in the usually lackluster first quarter). HTHT leapt as high as 39 in the hour after the market’s open, but gave it all back as weakness in Chinese ADRs as a group sapped enthusiasm. HTHT is a thinly traded issue, and it can get pushed around easily. As long as the stock can hold support around 35, we’re happy to give it a chance. We’ll keep HTHT rated Buy. BUY.
Credicorp (BAP 144) pulled back for three days heading into last Thursday’s earnings report, dipping from 145 to 135. Fortunately, the earnings report was a good one, and BAP, which got support from its 25-day moving average, has climbed back to within striking distance of its May 2 close. There may be some lingering worries about Peru’s possible downgrade to a frontier market or the Presidential elections, but investors seem to be sticking with BAP. BUY.
After a four-day sprint higher in mid-April, Ctrip.com (CTRP 43) corrected through the rest of the month, giving back the entire rally. The stock has slowed its decline, trading in a tight range with only fractional pullbacks. It’s likely that CTRP will continue in this mode until earnings are released, at which point the company’s investment in China Eastern Airlines will no longer be the main influence on its stock’s performance. We will keep CTRP on Buy, but with earnings on the way in the next few weeks, you should keep any initial investment small. BUY.
New Oriental Education (EDU 40) has been trading in a 38–40 range since late April, which is a good consolidation of its earnings-inspired jump from 36 to 40 on April 19. The stock’s rising 25-day moving average (now at 38.5) may provide a boost to the stock during the next week or so. With the Emerging Markets Timer counseling caution, we’ll stay on Watch. WATCH.
Seaspan (SSW 16) has pulled out of the correction that took it from a multi-month high at 19.6 on March 19 to support at 16. This is well above the stock’s lows at 13.5 in December and January. We shifted SSW to a Hold rating in last week’s issue, which was a reaction to both the price action and the negative signal from the Emerging Markets Timer. We’re happy to hold onto the stock and its 9.2% forward dividend yield. HOLD.
Sibanye Gold (SBGL 13) was moved to a Hold rating in last week’s issue as the cooling of the recent gold rush led to a pullback from 15.75 to 13.74 on the first three days of May. SBGL still looks okay, but it’s trading below its 25- and 50-day moving averages and the 25-day moving average is about to plow below the 50-day. If you want to have a little exposure to gold, SBGL remains a good way to play it, but we don’t want to be tied to a volatile commodity at this point, so we will Sell SBGL (which is within half a point of where we bought it) and hold the cash. SELL.
Silicon Motion (SIMO 40) reported its Q1 results on April 28, and the results came in well ahead of expectations. But the stock—perhaps reflecting the declining fortunes of Apple (AAPL), Silicon Motion’s most famous customer—has been trading in a choppy sideways pattern. SIMO has been showing rising lows and hasn’t lost contact with its rising 25-day moving average, so we’ll stay on Buy, but will react quickly to any move toward the 50-day. BUY.
TAL Education (XRS 54) reacted well to its fiscal Q4 results on April 28, popping briefly to as high as 60 in intraday trading. But the weakness among Chinese ADRs reined the stock in, pulling it back to support in a tight range around 54. As with our other stocks that have experienced good quarterly results but little in the way of price advances, we may have to wait for an advance in the broad list of emerging markets before stocks like XRS get the reward for their company’s good work. We will keep XRS on Buy. BUY.
We took some profit in Volaris (VLRS 21) in last week’s issue, selling half our position and holding the other half. VLRS dipped by a point last week, but appears to have found support quickly. The company announced a 10.2% increase in terminal passengers in April and record levels of charter passenger traffic. We will keep our remaining half position on Hold, as we wait for the stock to get past the sticky resistance at 21 that dates back to February. HOLD A HALF.
BUY A HALF.
YY.com (YY 45)
has been in free-fall over the last six days, dropping from 63 to as low as 44 on massive volume. This was in reaction to speculation that the investors who had offered $2.5 billion in a buyout bid would pull out of the deal, and that speculation was confirmed today. We still like the company’s unique social media platform, but there’s not much advantage to be gained from following a stock during a massive correction. When the stock finds a bottom, we may take another look. DROP.Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |
| China Lodging Group (HTHT) | 3/28/16 | 36 | 35 | -2% | Buy | |
| Credicorp (BAP) | 3/11/16 | 129 | 144 | 11% | Buy | |
| Ctrip.com (CTRP) | 2/26/16 | 42 | 43 | 2% | Buy | |
| New Oriental Education (EDU) | 5/6/15 | — | 40 | — | Watch | |
| Seaspan (SSW) | 6/22/12 | 17 | 16 | -9% | Hold | |
| Sibanye Gold (SBGL) | 3/4/16 | 14 | 13 | -6% | Sell | |
| Silicon Motion (SIMO) | 4/22/16 | 40 | 40 | -2 % | Buy | |
| TAL Education (XRS) | 12/18/15 | 48 | 54 | 11% | Buy | |
| Telekom Indonesia (TLK) | 3/4/16 | 52 | 57 | 9% | Sold | |
| Volaris (VLRS) | 9/25/15 | 15 | 21 | 41% | Hold Half | |
| Weibo (WB) | 4/8/16 | 21 | 23 | 10% | Buy a Half | |
| YY.com (YY) | — | — | 45 | — | Drop |