Current market view and possible trading stategy
The market is due for a correction, and the economy a recession. Don't think for a second those managing the big money are not aware of this. They also know that "trade wars" do not make them feel warm and fuzzy. Throw in some concerning economic trends starting to appear, and I do have to ask myself, are American stocks over-bought here?
Chinese stocks have largely taken a beating. Our favorite Chinese trading stock is HUYA. This is our favorite, because we consider it the fastest growing company rooted in strong fundamentals. Yes, you may find a faster revenue growth rate from an obscure $100 million Chinese stock, but HUYA is spun from a multi-billion dollar company, YY.
HUYA's live gaming platform is real, as are both the revenue and income growth, both often exceeding 100%. We've been trading it back and forth as it has gradually regressed from a high of 48.57 on June 18th, to it's current 32.19. That's a 33% shaving for a premier stock. While you can make the case that HUYA was ahead of itself when it nearly hit 50 so soon after it' IPO around 16, this drop is consistent with most high growth stocks in China. You do not see similar selling in U.S. stocks....... yet.
If Bluestar gets back in the market before the end of August, and assuming stocks are where they are today, we might grab some SDS (short etf) with a tight stop. If it's profitable, fantastic. If we take a small loss, that's the market telling us that shorts still do not work. When all is said and done, U.S. stocks are still in bull mode. The bull market is not over until it's over. Thank you Yogi Berra!
If the market holds up, and the bear market for Chinese stocks relents, we are bullish HUYA. They report earnings tomorrow, Monday 8/13. As bullish as we are, we realize anything can happen. Even the greatest earnings reports by superior companies get sold off. We would prefer to be long HUYA going into earnings, with a moderate position so we could average down if it did trade down post earnings. So, up we take profits, down we lower our average and are holding a grossly undervalued stock that is oversold to single digits stochastically.
The charts say up for HUYA, but if it crashes post earnings, and then does not rebound after we buy that potential dip, post earnings, we would consider Chinese stocks forbidden ground for all but long term holds. We will utilize HUYA as a proxy for high growth Chinese stocks and whether we trade them.
We love us some SQ. SQ reminds us of AMZN back when it had a $30 billion cap. Certainly there are differences, but SQ actually has revenue growth that can almost be compared to AMZN's back in the day. SQ is our proxy for the U.S. market. If buying SQ dips is not profitable, the bull has probably stopped it's run. Problem is, Jack's company refuses to dip!
We'd be remiss if we did not touch on GSKY. Our average was 18.23 and she currently trades 15.59---that's a 14% shaving. We remain ardent supporters of GSKY stock here, and if we loved it at higher levels, we love it even more at lower levels. That only makes sense, right? Yes, of course it makes sense given one caveat..... GSKY could go lower, and could stay lower, testing anyone holding the stock's patience.
Assuming the market for U.S. stocks stays strong, our fair value for GSKY is 35. If the bottom falls out of the market, all bets are off. Even if it doesn't, the market loves to shake out week hands by taking moves farther in direction, and for longer time periods chronologically than we would assume. It's as if the market says, ok, you want to make money in GSKY? How much time have you got? You want to lower your average as it goes down? How much money have you got if we keep taking it lower? This is why we buy in modest brackets, allowing us to average down and not commit to any one price level.
GSKY (current market cap of $2.99 billion) had it's IPO on 5/24 and other than the first week, this stock has never had a run. Stochastics on the 6 month are at 12, and it's at an all time low price wise at 15.59. We are talking about a company commanding 30% plus revenue growth, with a new agreement with American Express in it's pocket. GSKY has one of the highest, if not the highest, operating margins in the the fin-tech space, at 42%. $236 million in cash, a 17 pe, and a price to next year's sales of about 5. The summation on GSKY is that if the market remains bullish, we remain bullish GSKY and would add on if this retreats under 15 on an up day in the market.
GSKY is now valued at less than $3 billion. They are going to net $50 million in 2019. Institutions are going to appreciate those numbers even if many of you reading this do not. CVNA, one of our most beloved stocks, now boasts a $7.95 billion cap, and nets nothing. Yes, CVNA has stratospheric revenue growth, consistently over 120%, and I'm not saying they are overvalued, just that GSKY is undervalued.