In my first three picks for my Special Report 10 Best Picks for the Next Six Months of 2019 on my subscription site JubakAM.com I’ve focused on index ETFs that, in my opinion, will ride the big trend of lower interest rates higher in 2019. In other words, these are picks that go with the dominant market and economic trend.
For my next three picks, I’m looking for stocks, ETFs, or whatever that do indeed have the macro trends at their backs but that also have significant internal catalysts that will drive the price higher even if trends turn out to be weaker than (or contrary to) expectations.
China’s Tencent Holdings (TCEHY) is a good example of this group. It look like first quarter results put in a bottom for a horrible period when a government crackdown on smartphone games took a huge toll of revenue and profits at the world’s largest game maker. I don’t think regulators are about to completely go away, but the crackdown that led to fewer new game releases does look to be easing. (Smartphone revenue in the first quarter did still drop but the year over year decline was just 2%.) That resulted in a 17% year over year jump in profits to 27 billion yuan, well above the 19.4 billion expected by analysts.But the company’s reorganization looks to be taking hold and the new emphasis on finch and business services showed company leading growth with that new segment, representing 26% of revenue, showing 44% growth year over year. Tencent has also created new standalone units for its its cloud business and enterprise-facing services such as smart retail. Tencent merged advertising and sales efforts to form a new Advertising and Marketing Services unit. The Platform and Content Group is a new group to connect traffic from platforms such as QQ and YingYongBao to content services such as Tencent News and Video. Monthly active users for WeChat and QQ had reached 962 million and 850 million as of June 2017. (China’s total population is 1.38 billion.) WeChat trails only Facebook and WhatsApp in monthly users.
The stock is up 15.58% for 2019 as of June 20. I think the recovery has a long way to run. The ADRs closed at $45.49 today. Tencent is a member of my long-term 50 Stocks Portfolio where it is up 73.30% since I added it to that portfolio on February 14, 2017. Tencent is also a member of my 12-18 month Jubak Picks Portfolio where it is up 9.82% since my October 2, 2018 pick. As of June 20, the date I added it to this 10 Best Picks list, I’m raising the target price on Tencent in that Jubak Picks Portfolio to $65 from the prior $51 per ADR.