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China’s Hidden Goldmine 🤫
PLUS: 74% Gains... Now What? 🤷♂️
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For the 17th January 2025:
China’s Hidden Goldmine 🤫
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74% Gains… Now What? 🤷♂️
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China’s Hidden Goldmine 🤫
China’s best kept secret is printing cash. No ones paying attention but I want to make sure you are.
Enter ✨Jd.com ✨
A double figure day thanks to stimulus but this could be just the beginning
China’s Stimulus = Shopping Sprees🛍️
JD.com is the online shopping spot for appliances in China.
Beijing’s rolling out a stimulus package that’s lowering mortgage rates & loosening up lending. Consumers should soon have more yuan burning a hole in their pockets.
Where’s that money likely to go? Straight into JD.com’s massive cart.
How can we be so sure about that? Well. JD’s numbers are up even before any kind of stimulus.
Revenue hit 260.4B yuan ($37.1B) last quarter, up 5% YoY. Growth is little slower than it’s been in the past but with a fresh stimulus, those numbers will heat up.
Silent Cash Cow 🐮
It’s not just the revenue numbers that look great.
Free cash flow hit $4.8B in the last year. Now what to do with all that cash?
Well, they spent $3.6B on stock buybacks. 8.1% of their shares got sent to retirement last year. In just Q3 alone, they bought back $390M worth of stock. That’s 1.1% of their entire share count.
So what does that mean for us as shareholders?
Think of shares as pizza slices. Stay with me.
Imagine you order a pizza with your friends. There’s 10 slices. You own 1 slice. That means you own 10% of the pizza.
Pizza Hut (aka JD.com) calls you up buys back 5 slices & throws them away. Suddenly, there’s only 5 slices left. And you still own 1 slice.
Now, your slice isn’t 10% of the pizza anymore. Still with me?
It’s 20%. That’s a bigger share of the same pizza, without you doing anything.
To come full circle, in the stock market, buybacks reduce the number of shares available, so your ownership & the value of each share increases. It’s a company’s way driving value without directly paying you.
Did that help? Or are you just left wondering wtf pizza has to do with all this? Moving on… 😅
Why JD Could Pop📈
Undervalued AF: JD’s trading at its lowest valuation in years. If it re-rates to something like 10X earnings (which is super reasonable) it’d leave us with somewhere around 37% upside.
Wall streets in agreement that JD has huge upside potential
Capital Return Machine: Between free cash flow & buybacks, JD is practically giving money away to investors. And with a stimulus on the way? No chance they’re slowing down in 2025 💸
China Focus = Big Tailwinds: Alibaba & PDD are chasing global markets. They’re also pretty solid buys right now too. I think JD is doubling down on its home turf is a solid move. It’s riskier. It also means they should be able to out-compete anyone shooting for world domination &spreading themselves thin. Laser focus on domestic China means they’re perfectly positioned to cash in on China’s stimulus-fueled consumer boom.
The Catch⚠️
What’s the reasons to not full port it?
Their heavy focus on China is their biggest strength & the Achilles’ heel.
If Beijing’s stimulus is a flop & people start penny pinching instead of spending, JD will be stuck in neutral.
It also means that the competition like Alibaba & PDD that are hedging with international bets will have a few more advantages. First, they’ll already have a stronger foothold internationally. Secondly, they can use that international cash to crush JD domestically.
My Plan 🗺️
Government’s use stimulus for a reason. Because they usually work. Especially when they’re used to target the right spots & I think China have got it spot on to target consumer spending.
The fact China’s GDP was up for Q4 more than expected is proof of that.
By default, that means I think JD is a solid buy.
I’m embarrassed about how small my position is for such a great stock. Nearly 35% profit isn’t so bad though
China’s economic comeback is inevitable. If you also believe that to be true why would you not want your money in an asset with massive cash flow, aggressive buybacks & a dirt-cheap valuation?
I can stomach a little risk so I’m in for the ride. For how much I praise this stock, my position size is actually embarrassingly small.
JD currently makes up 0.33% of my portfolio. I’m going to round that up to a 1% position on market open.
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74% Gains… Now What? 🤷♂️
It’s the card that makes your date blush & has your friends thinking you’re rich.
I’m talking about American Express (AXP)
Turns out they’re not just great for racking up points, it’s actually a decent add to your portfolio, too.
They’ve been on a hot streak & Q4 earnings are dropping January 24th.
Here’s what I’m looking out for. 🔎
The Numbers 🧮
Analysts have sky-high expectations for the premium credit card brand.
EPS growth is expected to come in at 16% YoY. This bar is way up. Q3’s 8% growth was impressive enough.
Revenue growth is is pinned for 10%+. A solid number but not unreasonable. Falls in line with AXP’s long term view.
Nearly 74% returns in the last 12 months for AXP is super impressive
In the last 12 months AXP has returned 73.88%. That is insane. I’m a little late to this party.
With such an impressive trailing 12 months & the bar of expectations set so high it does make me a little nervous.
January 24th is either going to be a gold medal pole vault or face plant ready for a Fail army compilation.
You’ve got Visa. There’s Mastercard. A whole bunch I couldn’t list. What makes American Express so special?
Easy. The people who use it.
It’s the credit card company for big spenders. People with American express in their wallets spend 3x more than people on other networks.
And it’s not just that they spend more. Rich people are more resilient spenders.
Higher interest rates? Inflation? Who cares? Just shrug it off & book another luxury hotel.
That kind of clientele means American Express have a more limited downside than the competition when times are tough.
Eyes on Price Action 📈
AXP has been following my favourite “up & to the right” trend over the long term.
My favourite type of chart to see for stocks I’m invested in
But if we zoom in closer, you can see it’s been range bound since December, floating between $291 & $304.
It’s broken out of this range late last week. If earnings are solid, we’ll likely see a continued move up.
Range bound for a few months with a recent breakout
I highlight these levels because if AXP doesn’t deliver, I expect we’ll find price there again. As long as earnings isn’t a disaster, these levels will be solid entry points for a long term hold.
The Risks💀
It can’t always be rainbows & Amex points. What could go wrong?
Well, I said Amex spenders are resilient. I didn’t say they had infinite pots of cash.
If inflation & high rates finally crack their wallets it goes without saying AXP takes a hit. No spending = no fees to collect.
There top-tier performance is also a risk unto itself. It’s a fallacy to think just because a stock goes up means it has to come down. Zoom out on any of the high performing stocks if you don’t believe me.
But after a near 74% run, anything less than perfection for a little while might shake some investors out. I think these shakeouts will make solid entry points.
My Plan 🗺️
I’ve already added a small position pre-earnings. An earnings beat should see a further breakout. Unless they pull out something exception, I don’t want to increase position size at the current price or higher for now.
My current position in AXP makes 0.5% of the portfolio
If price falls for any reason other horrendous earnings, I’ll be looking out for $304 & then $291 to add to my positions. And if it goes lower than that I’ll go heavy on the position size.
All that said, it’s not worth sweating the short-term drama. AXP’s a strong brand. The elite customer base & consistent growth targets make it a winner for the long term in my books.
PS There’s also a 0.9% dividend for you income investors out there.
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