Alibaba’s stock has best-ever 2-day run after analysts ‘strong buy’ call

Shares of Alibaba Group Holding Ltd. shot up to a 1 1/2-year high in active trade Friday, after the China-based e-commerce giant was upgraded at Raymond James, which cited strong quarterly results and an attractive valuation.

Aaron Kessler, analyst at Raymond James, raised his rating to a strong buy, after maintaining an outperform rating since he began covering Alibaba nearly two years ago. Kessler raised his stock price target to $124, which is 26% above current levels, from $95.

Alibaba’s stock BABA, +7.06%  ran up 7.1% to close at its highest level since Jan. 28, 2015. It has advanced 12.5% since it reported fiscal first-quarter results before Wednesday’s open, the best two-day stretch for the stock since it went public on Sept. 19, 2014.

Volume was 71.7 million shares, nearly six times the full-day average of 12.5 million shares, according to FactSet, and enough to make them the most-actively traded on U.S. exchanges.

Don’t miss: Alibaba closes out a trifecta of e-commerce earnings beats

FactSet

Kessler offered several reasons for his more bullish view:

• Total retail revenue increased 49% to $3.52 billion, which was 6% above his estimates, because of strength in gross-merchandise volume growth and strong monetization gains.

• A big jump in monetization rates to 2.79%, in the latest quarter from 2.49% the previous quarter. The company showed improvements in both mobile, to 2.8% and desktop, to 2.78%.

“We would note this is the first quarter mobile monetization has exceeded desktop,” Kessler wrote in a note to clients.

• The cloud business is expected to continue to produce rapid growth—it nearly tripled in the latest quarter—and should remain the leader in China. Kessler said he believes cloud revenue is “well on track to reach a $1 billion run rate” by the end of the year.

• Strength in core margins, in which earnings before interest, taxes and amortization—a common measure of cash flow—grew 61% in the latest quarter.

• Shares are attractively valued, as 12 times calendar-year 2017 estimates of core-commerce earnings a share, compared with his expectations of 20% core long-term growth.

For Raymond James, stocks rated strong buy are expected to produce total annualized returns of at least 15%, and outperform the S&P 500 SPX, -0.08%  over the next six to 12 months. The S&P 500 has gained 6.8%, so far in 2016, as of midday Friday.

Kessler wasn’t alone in being more bullish on Alibaba. Of the 42 analysts surveyed by FactSet, three others raised their ratings, and 25 others lifted their stock price targets since Alibaba reported results.

By Tomi Gilmore

Source : http://www.marketwatch.com/story/alibabas-stock-takes-flight-after-analysts-strong-buy-call-2016-08-12

Is Now the Time for Chinese Stocks?

While the mainstream non-financial media choose to focus their attention to all the problems in Greece and its debts, an even bigger problem was brewing over in China. It seems that bubble in China’s overheated market may have finally burst. Panic selling in Chinese shares caused the nation’s markets to free fall causing many analysts to question whether or not China’s best days were now behind it and that this was a real crash or not.


But savvy investors know that there is big money to be made in calamity. For those portfolios with long term timelines, China is still ripe for some big time profits as its economy expands and switches to a more consumer driven one. The question now, is just whether or not to scoop up some of the values created by the crash. (For more, see: Greece or China: Which is the Bigger Worry?)

TOO MUCH HOT MONEY

The problems in China stem from a classic too much capital flowing into its markets. Like the U.S., interest rates are pretty abysmal. To that end, many mom-and-pop investors have been plowing their savings into the market heavily over the last year or so. That fact has been exacerbated by the recent ease of restrictions allowing regular retail investors access to brokerage accounts in China. In the end, Chinese stocks became a classic bubble. Think of the dotcom crash. It was all over when your grandmother was talking about business to business (B2B) stocks.

THEN THE BUBBLE BURST

Lower gross domestic product (GDP) numbers, earnings and extremely overvalued shares caused the selling to begin. Since the middle of June, China’s two main markets are down by considerable amounts. The Shanghai Composite has lost nearly 30% of its value, while the tech-heavy Shenzhen has plunged by over 40%. Adding to the panic selling is the ability of Chinese firms to halt/pull their shares to prevent further declines. At one point, nearly 60% of the stocks listed on the Shenzhen were halted. (For more, see: How China's GDP Is Calculated.)

But all the panic could be overblown and for longer-term investors, it could be a huge opportunity. To start with, Beijing has pulled out all the stops when it comes to rescuing its faltering markets. The nation’s central bank has cut interest rates to make it easier for investors to borrow and buy stocks. Additionally, brokerage firms - via cheap loans courtesy of China's Securities Finance Corporation - have steeped in as buyers of last resort. That’s put price floors on many shares. Finally, regulators have suspended all new initial public offering (IPO) activity. All in all, China has unveiled ten major actions to help prop up the stock market. (For more, see: China's GDP Examined: A Service-Sector Surge.)

Those efforts seem to be working as both the Shenzhen and Shanghai indexes have reversed their free falls. Longer term, much of China’s growth story remains intact. It’s vast consumer potential, relatively high GDP growth rates and financial prowess still makes it worthy of a portfolio. And investors can gain access at much cheaper prices. The broad-based exchange traded fund(ETF) iShares China Large-Cap ETF (FXI) can be had for a dirt cheap price-earning-ratio (P/E) of just 11.

TAKING THE CHINESE STOCK PLUNGE

With 30% and 40% plunges in the books already, the worst may be over for Chinese stocks. And it be a prime buying opportunity for investors. The previously mentioned FXI is the top Chinese ETF when it comes to asset size and trading volume, but a better pick could be iShares MSCI China ETF (MCHI). (For more, see: China ETFs: GXC vs. FXI.)

MCHI’s underlying index tracks both large and mid-cap stocks within China. FXI only focuses on the largest of the large. The broader mandated ETF holds 145 stalwarts in the nation, such as telecom China Mobile (CHL) and oil major PetroChina (PTR). These aren’t fly-by-night stocks and actually represent some of the largest firms in the world, let alone China. They’ll be here long after the crash plays itself out. Overall, MCHI provides a good mix of Chinese state-owned enterprises (SOEs) as well as pure-public plays in the nation. Expenses for the $2 billion ETF are relatively cheap as well at only 0.62%.

For those with iron stomachs and who can handle the volatility the Chinese A-share market, which is only available to Chinese citizens or qualified investors, could be the biggest value. There are several ETFs that allow you to directly tap into the Shenzhen and Shanghai markets. The two that matter are the Market Vectors ChinaAMC SME-ChiNext (CNXT) and Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (ASHR). (For more, see: What's the Best ETF for the Shanghai Composite Index?)

Both have qualified investor status and actually own the A-shares rather than swaps replicating the performance. ASHR tracks large-cap domestically issued Chinese stocks, while CXNT focuses on the small and mid-cap space.  Both have seen their share prices plunge as a result of the panic in China. However, they represent the future as China works towards opening its markets to outside investors.

Likewise, Chinese small-caps have been equally as decimated as its A-shares. The Guggenheim China Small Cap ETF (HAO) continues to be the prime way to gain access to China’s small-caps that aren’t off-limits to foreign investors. (For more, see:Three Ways to Trade Big Moves in the China Market.)

Finally, for those investors looking for China without so much risk, its bond market seems ripe for the picking. PowerShares Chinese Yuan Dim Sum Bond ETF (DSUM) tracks Chinese yuan-denominated bonds issued by Beijing and other government agencies. The fund’s duration is very short and DSUM currently yields 3.15%. That’s pretty impressive considering where it sits on the yield curve. (For more, see: The Chinese Yuan Bond ETF.)

THE BOTTOM LINE

The recent panic in China’s stock markets could be seen as a buying opportunity for longer-term investors. Much of the nation’s growth story remains intact. Those who can stomach the volatility could begin to nibble at some of the bargains in Chinese stocks at these levels. (For more, see: How to Profit from News about China.)

By Aaron Levitt

Source: http://www.investopedia.com/articles/markets/071515/now-time-chinese-stocks.asp

3 Chinese Stocks Still Worth Buying

CS SNP LFC BLK BAC HTHT

China’s bull run may have run out of steam. Last Friday, the country’s benchmark index slumped, raising concerns that stock gains had come in too fast and for too long. Market watchers also believed that a bubble had built up over time, pushing valuations to unsustainable levels.

Spectacular SlumpThis raises serious questions about the future of China’s equity markets. Government agencies may have to act quickly in order to stem the rout.

The Shanghai Composite Index nosedived last Friday, losing 6.4% at the end of trading. The benchmark index declined 13% over last week. After losing more than 10% from the high hit on Jun 12, the gauge is possibly indicating that a correction is in progress.

A measure of volatility rocketed to its highest level in nearly six years after 400 shares listed on the Shanghai exchanges declined. The CSI 300, which is made up of the country’s largest stocks, declined 6%. Sub-indexes of tech, telecom and industrial stocks within the index lost a minimum of 15% over last week.

The tech-heavy ChiNext slumped 5.4% and has declined 17% since it achieved a record high on Jun 3. The Hang Seng China Enterprises Index also moved lower, losing 0.6%. The Shanghai Composite declined at the sharpest clip compared to other global indices over last week. The slump comes after a 152% rise over the last 12 months, the highest across the globe.

Market Watchers Voice Concerns

Analysts and market watchers across the spectrum have voiced their concerns about valuations and the speed at which stocks have made gains. This includes key figures at Bank of America Corp. (BAC - Analyst Report), BlackRock, Inc. (BLK -Analyst Report) and Credit Suisse Group AG (CS - Snapshot Report).

They have highlighted the fact that China’s shares have gained nearly $6 trillion over the last 12 months. The bull run has been fueled by a substantial number of retail investors as well as record margin debt levels of $363 billion. Valuations have surged, with median stock valuations at 95 times earnings, compared to 68 at the peak of 2007’s feverish rush for stocks.

The benchmark’s gains had clocked up 928 days by Friday. It is a record level, the highest since trading began in 1990 and is five times or more than the average duration of earlier rallies.

The immediate decline was the combined effect of two factors. A series of IPOs had raised concerns about funds crunch. In fact, concerns over IPOs were not altogether unfounded. The 25 new share sales may have locked up more than $1 trillion according to one estimate.Government Intervention Likely

Meanwhile, a further cut in reserve-requirement ratios, expected to take place over the last weekend, failed to materialize. Disappointing data on exports and producer prices had created expectations that a third such reduction would take place this year.

Market watchers believe that this is an opportunity to purchase China stocks. It is widely expected that the government will intervene in order to boost equity markets. Among likely measures are adjustments in the new share sales schedule and changes in margin trading norms. Further action on President Xi’s initiative to foster overseas transport links could also boost investor sentiment.

Our Choices

Below we present three stocks which are still worth buying despite last Friday’s rout, each of which also have a good Zacks Rank.

China Petroleum & Chemical Corp. (SNP - Analyst Report), or Sinopec, is the second largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China.

Sinopec holds a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 11.9% for the current year. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 11.56.

China Lodging Group, Ltd. (HTHT - Snapshot Report) is an economy hotel chain operator in China. The company offers hotel products under three brands that are designed to target distinct groups of customers.

China Lodging Group holds a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 15.4% for the current year. It has a P/E (F1) of 29.87x compared to the industry average of 34.40.

China Life Insurance Co. Ltd. (LFC - Analyst Report) is China’s leading life insurance company. It is a subsidiary of China’s first insurance company, China Life Insurance (Group) Co.

Apart from a Zacks Rank #2 (Buy), China Life Insurance has expected earnings growth of 32.3% for the current year. It has a P/E (F1) of 18.94x.

Despite the current slump, China’s equity markets still present a good buying opportunity. If anything, the current downturn could be a good time to pick up stocks at lower prices. The world’s second largest economy still retains considerable strength and further government action to boost investor sentiment is likely. This is why these stocks would make for a prudent choice.

by Swarup Gupta 

Source: http://www.zacks.com/stock/news/179087/3-chinese-stocks-still-worth-buying

Bull of the Day: New Oriental Education & Technology (EDU)

After an excellent quarterly performance, estimates for China’s top tutoring company have been on the uptrend, sending the stock back to Zacks rank #1 (Strong Buy) last week.

About the Company
 
Founded in 1993, New Oriental Education & Technology Group ((EDU - Snapshot Report)) is the largest provider of private educational services in China with about 20.8 million student enrollments. The company IPO’d on the NYSE in September 2006.

Headquartered in Beijing, New Oriental group currently has a network of 722 schools/learning centers and over 17,000 teachers in 50 cities. Additionally, it has a large online network with over 10.4 million users.

Excellent Quarterly Results

The company reported its Q3 FY 2015 results on April 21.  Revenue for the quarter increased 13.1% year-over-year to US$287.7 million. The increase was mainly driven by strong performance of K-12 after-school tutoring business, which grew 22% year-over-year and accounted for almost 50% of total revenues.

Total enrollments for the quarter were flat year-over-year, but according to the management this was mainly due to the timing of the Chinese New Year in 2015, which delayed enrollments for spring classes. They opened 20 new centers during the quarter and closed 11, resulting in a net addition of nine.

Net income for the quarter was US$41 million, up 2.6% from a year ago. Net income per share came in at $0.26, significantly ahead of the Zacks Consensus Estimate of $0.20 per share.

Strong Guidance

The company expects total revenue in the fourth quarter of 2015 to be in the range of US$322 million to US$333.5 million, up about 12% to 16%, from the same quarter in 2014.


After strong results, analysts have been raising their estimates for the company. Zacks Consensus Estimates for current and the next fiscal year now stand at $1.23 per share and $1.48 per share respectively, up from $1.13 per share and $1.41 per share, 30 days ago. Rising Estimates 

EDU has a recognized brand name and a leadership position in areas like overseas test prep, English language tutoring, overseas study consulting and K-12 after school tutoring. Private education industry in China has been growing rapidly thanks mainly to rising incomes of the expanding middle class in the country.The Bottom Line

The group is also a pioneer in the online education industry in China. Of late, they have increased their spending on their online education platform, which is expected to propel earnings growth in the coming years.

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by Neena Mishra

Source:  http://www.zacks.com/commentary/45460/bull-of-the-day-new-oriental-education-technology-edu