Friday File: One Sell, One Short, A few add-on Buys… plus some quarterly updates

Updates and notes on Kweichow Moutai, Altius Minerals, Kennedy-Wilson, Tesla, Disney, Equinox Gold, Shopify, iQIYI, Hershey, Premier, Keysight and more...

By Travis Johnson, Stock Gumshoe, August 23, 2019

Today I’ve got a few portfolio moves to share with you that go against the Wall Street mantra (“sell your losers, let your winners run”)… last night I sold my position in Kweichow Moutai in China — this is a fantastic company, mostly because they have insanely high profit margins on their signature Moutai liquor… but they are also capacity constrained, and it’s unclear to me that they’ll able to extend the brand “halo” beyond their core product.

There is a lot of brand power here, thanks to their unique position in the marketplace and their historical connections with the party, but at this valuation great brand power might not be enough… particularly because I’m taking more direct Yuan exposure with this one and am also exposed to the Hong Kong interconnect system that could eventually be a casualty of the continuing capital flight or the crackdown on Hong Kong in general. That’s not a huge concern, each risk piles up like a new shovelful of feathers on top of the shares, but eventually those shovels add up… particularly at 30X earnings for what will probably be a lower-growth year.

Kweichow is up 70% in the past year, and is up more than 50% from when I first bought shares about a year and a half ago, and it is a huge firm. The company has a market capitalization of about $240 billion (CNY1.7 trillion), so it’s among the larger companies in the Chinese market (and is the largest beverage company in the world — bigger even than Anheuser Busch or Coca Cola, and much larger than competitors like Diageo (DEO)). They had a little less than $6 billion in revenue in the first half of this year (a total of $9.3 billion in 2018), they have grown nicely as they’ve increased capacity and raised prices, but the expectation is that revenue growth will slow down to something like 10% because of capacity constraints… and I would assume that competition would make an impact at some point, if not in their highest-end product that is outside the reach of the middle class then at least in their lower-end liquors.

I don’t like to sell strong and valuable companies just because they’ve gotten a bit too expensive, so I would likely take partial profits and let the balance “ride” on this one if it were easier to trade, but ...

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