Another Portfolio change

Defensive is my new offensive

So I continue my quest of reducing China exposure and finding good defensive plays. My portfolio changes are the following as of market closings today (Tuesday):

  • Buy 6% of my NAV into Gilead Sciences
  • Add 50% to my current holding in Xtep International
  • Sell¬†40% of my current holding in BYD
  • Sell my full holding in CRRC

All in all this slightly reduces my very large cash position. Some quick comments on the changes:

Gilead Sciences

As I have mentioned in several posts, I have been circling the Pharma sector for quite some time now. Since it is, at best, a murky area to try to estimate the value of a big companies research pipeline, I have struggled to come to an investment decision. It’s easier with companies where current cash-flow motives more of the value. I tend to end up a bit too much on Seeking alpha, trying to find people who do understand the intricate details of this industry and especially the pipeline. Someone that I do trust though on the topic is Martin Shkreli, who freely shares on his thoughts in his Youtube streams. He is a fan of Gilead lately (when the valuation has come down). That gave me some comfort to keep looking at the stock. After seeing this (WertArt Capital on Gilead) very in-depth review of Gilead, I realized I might be a bit late to the party. But nevertheless, I want exposure to the sector which I feel have come down valuation wise and is defensive. Giliead is the best I have been able to come up with after a long search. I feel confident enough to take a position at what I believe is still a decent entry point, with some confirmation that the down-trend is broken.

XTEP International

The case is simple, if this company is not a fraud, it is undervalued. All other Chinese shoe companies have continued to perform fairly well and outperformed XTEP. This might be the ugly duckling, but I don’t believe it is THAT ugly. We will also get a very quick answer on my bet, since the earning report is released tomorrow, I’m hoping for a +10% pop upwards in the stock-price.

BYD

The countries outside of China keep disappointing me in how much they dare to commit to electric buses, it’s already proven to work fine in China. This is where BYD is very strong and have a top product. On top of that I still don’t see BYD releasing a car anything near to Tesla Model 3 or Chevy Bolt, so my thesis from over a year ago, that I’m unsure of BYD’s success in the car market, stays the same. I haven’t given up on BYD, but I could see this one visit the high 30’s again and choose to reduce my position.

CRRC

This was my Belt and Road play, perhaps somewhat sloppily implemented. I decided to not invest in the theme before I understand it much better than I do right now. It has a holding I don’t have a strong view on and selling it reduces my China exposure, so out it goes.

My next post..

..will be about Teva. I have been very occupied lately and I still need some time to dive into the details. So stay tuned for Part 2 and let’s see if it becomes a new investment or not.

Read More

You win some, you lose some

So the earnings season continues and it is definitely throwing a mixed bag at me this time, some serious burns and a few good ones. Let’s go through the largest movers:

NetEase

The day before the earnings release I cut my holding with 30%. So was that a good move? Yes and no. Yes, because the stock price actually initially fell 6-7%, but since I am not a day-trader that doesn’t matter much to me. The stock later recovered and is now trading a few percent below my selling price. No, because they actually came out with the best possible earnings I could imagine, I’m actually surprised the stock has not traded higher. So at the moment the market is still putting a fairly substantial risk premium to this stock, I still feel its american investors not trusting a Chinese company.

Zhengtong Auto

Well this was a disaster report, I have counted this as one of my value stocks in the portfolio. A lot of the other car sales and services companies in China has started to recover nicely, both in terms of earnings and share-price appreciation. But Zhengtong is clearly lagging her, suffering from mainly their tilt towards BMW cars. BMW sales have been weak, because BMW is not delivering new models attractive to the Chinese consumers. Stock was down -15% on the report and continued down from there, ouch.

Shanghai Fosun Pharmaceutical

I bought this just before their earnings release, which was solid, not amazing, but solid. The stock market slowly took the figures to its heart and the stock trended slowly upwards ending up over +8% on the day, lucky start for this holding.

CRRC

OK earnings and net income, but outlook was weaker than expected, the report was not well liked by the market, I think it has been punished somewhat harshly, but my doubling up in this stock just before earnings became terrible, the stock is down -9% from where I increased my position, again, ouch.

Read More

Slicing and dicing – NetEase, CRRC and Autoliv

Tomorrow NetEase, which has become the portfolios biggest position will report results, I still believe in the company long-term but I decided to slice the position somewhat, to lock in some profits while we are close to what I saw as the short term price potential of the stock. I sell 30% of my NetEase holding as of close today. I’m still optimistic about the report though, Tencent released it results today and they beat analyst estimates, mainly due to very strong gaming profits in their mobile games. NetEase is not as heavily tilted towards mobile (yet), but I still see it as a positive that the sector seems to still have some legs to it’s growth. As a Chinese colleague of mine explained to me, the urbanisation has created all these huge cities where people have 40-50 min daily commutes on the subway, what else would they do than play games on their smartphones to and from work.

The cash from NetEase I place in CRRC, which I had at a smaller weight and now take up to a full size position. From the cash I have left I also take a 3% position in Autoliv, the stock has been trading fairly weak lately, although they have a lot going for them in the smart car space.

 

 

Read More