All Explorer positions except Grupo Televisa (TV) advanced this past week and the emerging markets timer (EEM) is positive in an uptrend and above both its 20-day and 50-day moving averages.
Today’s recommendation is a company showing some relative strength that offers a nice blend of emerging growth and Western management. It’s a business with a diversified portfolio of fuel distribution, sugar production, ethanol and electricity, rail transportation and warehousing as well as the distribution of natural gas.
Cabot Global Stocks Explorer 701
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Back to Brazil for a Sugar High
As we move into the last week of 2019, our Explorer portfolio is advancing nicely.
In particular, Virgin Galactic and Luckin Coffee continue to outperform and Sea Limited and Alibaba hit new historical highs this week.
The MSCI emerging market index (EEM) is up 14% so far this year and has established a pretty good uptrend that will hopefully continue into 2020.
The upcoming IPO by the Beijing-Shanghai High-Speed Railway could be the largest in mainland China in almost a decade and might come before the end of the year.
The state-owned company, which made $1.5 billion in net profits in 2018, owns the 819-mile rail link that connects China’s political and financial capitals in about four hours. Last year, nearly 200 million passengers traveled on the line, which covers roughly the distance between New York City and Chicago. In comparison, Amtrak from New York to Chicago takes 19 hours.
Let’s move on to this week’s new recommendation.
Featured Stock
New Explorer Recommendation: Cosan Ltd. (CZZ)
Brazil is a big country with a sweet spot in resources very much favored by China as it seeks both food and energy security. China has become Brazil’s largest trading partner and is likely to stay there for some time.
The Portuguese brought sugar to Brazil, and by 1540 Brazil had 2,000 sugar mills. Sugar is grown from two main sources: sugarcane and sugar beet. Sugar beets are grown mainly in the U.S. while sugarcane grows mostly in tropical climates, such as Brazil and the Philippines.
Cosan (NYSE:CZZ) traditionally makes and sells sugar and ethanol but has expanded into a number of other related industries.
The stock is in a strong uptrend as Cosan offers a nice blend of emerging growth and Western management with a diversified portfolio of fuel distribution, sugar production, ethanol and electricity, rail transportation, warehousing, and the distribution of natural gas.
Shell launched a $12 billion biofuels joint venture with Cosan named Raizen, which has become one of the largest firms in Brazil. Raizen has more than 7,000 service stations, over 1,000 convenience stores and recently acquired Shell’s assets in Argentina, including more than 650 fuel stations.
Cosan’s Comgas is Brazil’s largest natural gas distribution company, with more than 1.9 million customers and another Cosan subsidiary is Brazil’s largest lubricant company, producing Mobil, Comma and other major branded products. It also owns the Zip Lube franchise network specializing in automotive services. Finally, Cosan owns Latin America’s largest logistics operator, with 1,000 locomotives and 25,000 railcars that helps move all the stuff they make from the point of production to point of sale or export.
Cosan has been on a roll with earnings per share up an average of 70% over the past three years while delivering a return on equity over 20%. This is impressive given that sugar and natural gas prices have been relatively weak.
Its most recent quarter indicated that momentum is accelerating with net profits up 790% year over year. Despite the stock’s strong performance in 2019, it is trading at just twelve times trailing earnings and perhaps ten times on a forward basis. BUY A HALF POSITION
Model Portfolio
Updates
Alibaba (BABA) shares reached an all-time high of 214 this week.
The company’s most recent earnings report was impressive: (sales up 40%), and big annual Singles Day sales event ($38 billion of merchandise sold).
For a company of its size, BABA is still a growth stock and is a core holding for those looking for exposure to the rising Chinese consumer class. I would still be a buyer as the stock is perhaps the best conservative big China play out there. BUY A FULL POSITION
DBS Bank (DBSDY) shares again added two points as the stock forges ahead on the back of a Singapore market that is lately showing some life. This is largely a dividend and income play with dividends climbing by over 100% from 2014 to 2018.
DBS is the largest and highest quality bank in Southeast Asia and the leading consumer bank in both Hong Kong and Singapore. DBS produces steady profit margins, revenue and earnings and is also increasing market share in consumer and corporate banking. Despite all of these strengths, DBS is trading at only twelve times trailing earnings.
I encourage you to buy at these levels for a great core holding and play on Southeast Asia. BUY A HALF
Freeport-McMoRan (FXC) is a play on recovering sentiment in iron and copper that moved only marginally this week. Over the last 25 years, FCX has moved with copper prices 88% of the time.
Headquartered in Phoenix, Arizona, the company manages mineral properties in North America, South America, and Indonesia. The company primarily explores for copper, gold, molybdenum, silver and other metals primarily in Indonesia as well as in Chile, Peru, New Mexico and Colorado. It is the world’s most significant copper producer.
I encourage you to buy FCX if you have not already done so. BUY A HALF
Grupo Televisa (TV) was the only stock in the Explorer portfolio to pull back a bit this week. We’ll give this stock a few more weeks to see if it can develop an uptrend as emerging markets move forward.
This stock could gain traction since TV is like having CBS, Comcast and 21st Century Fox tied together in one package. The company owns a dominant set of Mexican TV stations; a controlling stake in the country’s largest satellite TV business; and a 36% interest in Univision, the big U.S. Hispanic broadcaster. In addition, TV is also Mexico’s top provider of cable TV services.
All of this is very positive for TV but I’m moving this to a hold based on relative weakness. MOVE FROM BUY A HALF TO HOLD A HALF
ICICI Bank (IBN) Its most recent quarter showed net interest income jump 26% year over year and the bank posted robust 22% loan growth in the retail segment with deposits rising 25% as credit quality improved.
IBN is a solid India play and there are still 191 million Indians without a bank account, which means a lot of potential new customers.
Having said this, I’m moving IBN to a sell based on India’s weakening economy. I’ll keep on eye on this stock going forward and we’ll likely be back to it before long. MOVE FROM HOLD A HALF TO SELL A HALF
Luckin Coffee (LK) shares continued their strong momentum, jumping 20% from 30 to 36 over the past week. I suggest that readers with substantial profits protect those gains by setting stop losses of 20%.
In the third quarter, the number of stores/outlets grew to 3,680 and revenue was up nearly 70% or 2.9 times the increase in store count. Its strategy to compete with Starbucks is a combination of quality, convenience and affordability, with most of its shops set up for takeaway and delivery.
Luckin is an aggressive stock carving out a niche in China’s high growth coffee market. I like the trajectory of this young company and think aggressive investors can aim to get in on the next pullback. BUY A HALF
Marvell Technology Group (MRVL) shares picked up 4% over the last week. Growth is being propelled by 5G momentum by Samsung and Nokia, which both use Marvell’s 5G chips.
Marvell recently sold its Wi-Fi business to NXP and is a leader in web-enabled devices that collect, send and act on data using sensors, processors and other hardware.
New markets are emerging in which Marvell has a first-mover advantage such as virtual reality, drones, data integration and consumer and industrial robotics. This is a quality company operating in high growth strategically important markets and the company is boosting its stock buyback program.
I recommend that you buy a half position if you have not already done so. BUY A HALF
NovoCure (NVCR) shares continued their run this week up 5 points.
NVCR is a unique company in the biotech space, marketing what is actually a device, Optune, to treat cancer in a revolutionary way by mechanically disrupting cancer cell division.
This process uses electrical fields to non-invasively disrupt cancer cell division and growth. Sales are expected to be up 30% in 2020 with positive earnings.
In its most recent quarter, gross margins were firm at 75% and the balance sheet is strong with $313 million in cash. I encourage you to begin with a half position if you have not already done so. BUY A HALF
Rakuten (RKUNY) shares were up 6% as we wait for the company’s holiday sales numbers as well as the rollout of 5G services in early 2020.
Rakuten is a well-diversified conglomerate with tentacles throughout Japan and has plenty of running room for international expansion. Its loyalty membership program is more than 100 million strong and it is Japan’s #1 Internet bank and #1 credit card.
If you haven’t yet bought shares, this would be a good time to buy a half position since it is trading at just under nine times trailing earnings. BUY A HALF
Rio Tinto (RIO) shares were up only marginally this week.
London-based Rio is one of the world’s premier multinational mining and commodity firms. Operating across 35 countries, it supplies the world with gold, diamonds, copper, titanium, iron ore and other industrial metals.
As some key commodities such as copper seem to be beginning an uptrend, Rio offers good value, currently trading for about seven times earnings, and offers a current dividend yield of 5.8%. BUY A FULL POSITION
Sea Limited (SE) shares went from 37 to 39 and were highlighted by Investor’s Business Daily as its stock of the day.
Sea is an aggressive idea focused specifically on Southeast Asian markets representing 650 million consumers.
Finally, its e-commerce platform Shopee is being deeply discounted despite gaining market in the fast-growing Southeast Asian market.
It makes sense to place a trailing stop loss of 20% to lock in gains. New subscribers should purchase Sea up to 40. BUY A HALF
Virgin Galactic (SPCE) shares tacked on another 20% gain this week!
The company has reservations from over 600 people in 60 countries, accounting for $80 million in deposits and $120 million in potential revenue.
Sir Richard Branson confirms that space tourism flights will begin within a year and he expects profitability by 2021.
The cost of a Virgin flight on SpaceShipTwo, which can hold seven passengers and two pilots, is $250,000. A recent Morgan Stanley report correctly describes the space tourism company to a biotech in terms of risk/reward.
The big payoff is down the road with hypersonic point-to-point travel. While a business jet takes 11 hours to fly from Los Angeles to Tokyo, a hypersonic vehicle traveling at five times the speed of sound could make the same journey in just two hours.
Although this stock has made a substantial move in the last three weeks, I would still be a buyer though some may wait for a dip to buy shares. BUY A HALF
The next Cabot Global Stocks Explorer issue will be published on January 9, 2020.
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