Ah, our old friend Louis Navellier — with the big move in the market over the last couple months his earnings momentum and growth stocks are doing him proud, it appears, and he’s once again advertising heavily.
Today he’d like you to subscribe to his Global Growth newsletter, which is one of his super-expensive offerings (normally more than $5,000 a year) … of course, it’s “on sale,” as most letters seem always to be, so it’s “only” $396 for three months right now.
And the “before midnight” bit? That’s the deadline for his “sale” offer on the newsletter, he says (though he didn’t say whether he meant midnight today or not). But to be fair, the investment he’s calling the “best stock in the world” does release earnings next week, if you’re looking for a deadline of some sort.
This latest spiel of his is launched with a brief rant about capital fleeing the United States because of Obama’s efforts to either penalize corporate tax evaders and close loopholes, or make American business uncompetitive (depending on which side of that issue you’re on) — and he says that corporations will be getting “outta here,” as some have already planned or threatened (Halliburton, Foster Wheeler, Tyco Int’l are the companies he mentions).
In his words:
“As investors, you HAVE to be where the capital is.
“If it is exiled to Switzerland or Bermuda, go there. If it is being created in Shanghai, get thee thither.
“Banks, shippers, global retailers and commodity-based stocks—all the big winners of the year, are all now located abroad, out of the way of Washington’s poisonous TARP money, confiscatory tax plans and make-it-up-as-we-go-along rules.”
So that’s his basic pitch for Global Growth — that he’s been picking good ADRs (this service picks international stocks, but only those that are listed in the US or trade as ADRs and are thus easy for his subscribers to buy — a common policy among newsletter writers). And with the bounceback this Spring in emerging markets and other “risk” investments, it’s no surprise that he’s had some good picks recently — he says that …
“Among the stocks registered abroad as ADRs, we already have 9 that are doubles or better this year.”
And we’ll just not mention last year’s performance … that would be rude.
So what companies does he tease for us? Actually, there are two.
The first one is one that he says he recommended to his subscribers (this isn’t the “best company in the world — we’ll get to that next). Here’s the tease:
“Among the top global stocks listed in tonight’s Global Growth is one you probably don’t know about. Indeed the company is virtually unknown on Wall Street. But count off its other advantages:
“It’s headquartered in China, where the market and indeed the economy has quickly returned to roaring ahead. China has spent TEN TIMES MORE than we have to kick-start their economy.
“Its top clients are banks. In particular, banks in China with growing revenues use the IT services of this company.
“There’s not a whiff of debt.”
That’s not enough of a hint to be certain, but that’s probably Longtop Financial (LFT) — that might ring a bell for avid Gumshoe readers (which is all of you, right?) … this was the “stock of the month” for Cabot in April, you can read about it here.
LFT is just about at the same price it was when I last wrote about them, right around $24 … they release earnings in two weeks.
But on to the “best stock in the world,” shall we?
And just to let you know: I must confess that I sold the “best stock in the world” three years ago, at about half the current price. Of course, no one told me it was the best stock in the world at the time, dangit.
But I should tell you what it is, no? We have a procedure here, so let’s look at the clues first:
The best stock in the world today is, as you might guess, a China stock.
But you must buy it before midnight tonight and here is why:
Last quarter, the company announced a 50% earnings surprise. The effect was to trigger a 63% run-up in the stock!
The best stock in the world is a China online media company that you could have snapped up for 13 cents a share in July 2001. Within 2 years of that, you would have found yourself 13,800% richer, and if you’d held on, you’d be up 21,500%.
That has handed investors with foresight and $10,000 a $2 million windfall today.
Click here to find out more.
Up Another 21,500%?
“Well, the underlying business is doing very, very well. Plus, it has a cash hoard of $823 million, so it has liquidity (almost an embarrassment of it) at a time when rivals are strapped….
“The company is increasingly diversified, too, offering alumni clubs, personal home pages, instant messaging news and email services.
“For many millions in China, this is the “The Third Place,” the place between home and work that offers comfort, play and simplicity in times of great stress. All this creates great loyalty, and loyalty is the cornerstone of every great growth business I have ever backed.
“Best of all, the best stock in the world just received a fat check from China’s Treasury Department. Tax rates have been slashed in China as part of their Stimulus Plan (hello, anyone home in Washington?), and our company was among the first to qualify for a sizeable rebate.”
He mentions a $23 share price, so we must assume that he either picked the stock there or it’s trading around that point now. And he tells us that earnings are coming “in the next few days.”
So what is it?
This must be our old friend, NetEase (NTES).
NTES does offer services like email (which was its core product way back when), social groups, etc., but the main offering is online gaming — primarily massively multiplayer online role playing games (MMORPGs). 80% of their revenues come from their two hit games, both of which are getting very old now (Fantasy Westward Journey and Westward Journey II), both of which routinely have had well over a million concurrent users. Online gaming remains a huge business in China, a social activity and outlet for a nation of sibling-less young adults and an inexpensive entertainment.
The reason I sold NTES a few years ago was that the online gaming business in China is very competitive and hit-driven, and I lost all faith in my ability to understand which games would be hits and which would be flops — and the stock has gone up nicely in those intervening years, largely because their two hits remain huge (though they’ve failed to find an audience with several other titles).
The other stuff in the teaser is accurate — they do have about $823 million in net current assets (though only $777 million of that is actual cash in the bank), and the share price has been close to $23 recently — though it’s climbed rapidly since March and is now at about $30. They did surprise on the upside with their earnings last quarter by about 50%, and that was in part due to a tax rebate from the Chinese government.
The big news this Spring from NTES is that they have beaten out The9 for the rights to World of Warcraft in China, starting this Summer. World of Warcraft, from Activision Blizzard, is by far the most popular online roleplaying game in the world, and has for many years been one of the most popular games in China, competing with the offerings of NetEase and Shanda and the other local game companies. So now NTES will have three of the top games in China, which seems like it can only help them build their revenues — with the downside that because of WOW’s profitability, NTES had to pay up for the rights and agree to share revenue with Activision Blizzard, so as revenues climb the profit margin will probably shrink.
Since video gaming in general is a hit-driven business, it might be helpful to think of this as being kind of similar to Disney having a distribution deal with Pixar — they paid a lot to get the rights to the creative content, but it was still very good for the company even if it meant their margins on Pixar-produced films were lower than their margins on in-house movies. (This is before Disney outright bought Pixar, of course).
Will it work as well for NTES and keep the hits coming? As I said when I sold NetEase a few years back, I have no idea — these games are stickier than I thought, since I would have guessed that their older hit games would have been overtaken by new competitors with fresh games in the several ensuing years, but apparently even the newer games NTES has tried to sell haven’t eaten into the popularity of the older games. Once you’ve learned a game and established a character and an online community around that game, apparently it can stick for years.
That makes it a nice, high margin business model — and analysts still seem to like the shares, on average they’re estimating/guessing that NTES will earn about $2 a share this year for a current PE of 15, and Morningstar’s analyst is clearly waffling quite a bit but thinks the “fair value” for the shares is about $30, right where they stand now.
So, will NTES make you money if you buy the shares at $30? Well, that’s your call — let us know what you think with a comment below.
And it’s been a while since we looked at Louis Navellier, so I should tell you that the reviews of his letters are decidedly, um, we’ll say mixed to be polite (this shouldn’t come as much of a surprise, since the reviews site was launched after an awful year for growth stocks). We have no reviews yet for Global Growth (click here to add yours now!), but do have reviews in for Emerging Growth, Blue Chip Growth, and Quantum Growth for your enjoyment and edification.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.