CNN Money’s Daniel Shane just put out a doozy.
Just take a look at this Oct. 5 headline: “China’s Tech Stocks Are Partying Like It’s 1999.”
“Shares in China’s biggest internet companies are on a tear this year,” Shane went on to write, “but some investors think things have gone too far.”
The guy didn’t even have the guts to make this argument himself. Instead, he leaned on “some investors.”
To me, this is just the latest rehash of the half-decade-old effort – among “some investors” – to prove that a Silicon Valley “tech bubble” was about to burst.
This time, there’s a slight twist. The bears’ latest “bubble” is across the Pacific Ocean, among Chinese web firms.
The idea at work here is that China’s entire e-commerce sector is about to go the way of the “dot-com” crash that slaughtered the Nasdaq Composite more than 17 years ago.
Here’s the thing. Shane’s entire premise is based on a false analysis. I think “some investors” may have led him astray.
Today, I’ll show you, with math, that the opposite is true.
I’ll prove that China’s web leaders are not in a bubble – and that they offer tech investors like you huge long-term upside.
Plus, we’ll investigate a great way to ride this trend for maximum profits – the kind of profits that keep beating the market year after year after year…
Do the Math
The best class I ever took in college was advanced statistics. I have burnished that education over the years by regularly working on my skills in ratio analysis.
What that means is you compare one set of numbers against another, often a benchmark like the return of an overall index against that of a specific stock.
Let me explain why this is important. See, the CNN Money piece made the bold claim that China’s web firms are overpriced based on a simple metric. Shane noted that some of the firms trade at high multiples of forward price to earnings (forward P/E).
Be he failed to turn up even a single piece of empirical data.
Folks, this is something that’s in my DNA. I do these kinds of comparative analyses all day long as I hunt for profitable tech plays.
I do all this math because I’m a growth investor. And so even if I’ve found what I believe is a breakout stock with huge earnings upside, I still want to know how much of a premium I’m paying.
So let’s drill down and get specific. The Nasdaq 100 index trades at 21.3 times next year’s earnings. This gives us a good benchmark to compare how much of a premium we are paying for the enormous growth that defines China’s web sector.
Let’s take a look at one company specifically – one my premium Radical Technology Profits members have already made peak triple-digit gains on…
Meet the Facebook of China
Momo Inc. (Nasdaq: MOMO) operates China’s leading mobile social-networking platform – making it the Facebook of the world’s most populous nation. Data compiled by Yahoo Finance shows it trades at just 13.8 times forward earnings.
That means you can buy Momo at a 35% discount from the top Nasdaq stocks – even though earnings jumped 294% in the most recent quarter. Even compared to the S&P 500’s forward multiple of 19, you can get Momo at a 28% discount from the overall market.
Of course, some of these stocks do trade at a premium on a forward-earnings basis. Take a look at Chinese e-commerce king Alibaba Group Holding Ltd. (Nasdaq: BABA).
That’s a stock you folks have made 113% on since I first recommended it back in March 2015. Compare that to the S&P’s mere 21.5% gains.
Alibaba trades at nearly 27 times next year’s profits, or about 26% higher than its peer group. But that’s roughly in line with the forward P/E for Alphabet Inc. (Nasdaq: GOOGL) of 24.5.
Alibaba is often called the “Amazon of China.” And compared to Amazon.com Inc. (Nasdaq: AMZN), it’s a bargain, with BABA trading at a 78% discount to Amazon.
Bear in mind that Alibaba nearly doubled earnings in the second quarter while Amazon and Alphabet both had earnings declines.
In other words, as a group, China’s e-commerce firms offer us superior earnings growth and market-crushing potential. After all, as a group they are growing roughly 40% a year.
Here’s how to play all that growth…
The Emerging Markets Internet and Ecommerce ETF (NYSE Arca: EMQQ) is a great way for investors to grab just about all of the Chinese web sector in just one move.
However, it’s not just a China web play, as EMQQ holds companies from the fastest growing parts of the developing world.
EMQQ’s holdings must derive at least half of their revenue from emerging markets and frontier economies and have at least a $300 million market cap. In addition to China, this ETF covers Africa, Eastern Europe, India, and Latin America.
But its biggest investments are China’s e-commerce stars. It holds Momo, Alibaba, Tencent Holdings Ltd. (OTC: TCTZF), and JD.com Inc. (Nasdaq ADR: JD). Plus, it owns a number of lesser known e-commerce stocks that are focused on fast-growing nations.
Look at This All-Star Lineup
Take a look…
- NetEase Inc. (Nasdaq ADR: NTES) is one of China’s largest providers of email services. Its email software suite offers voice search and facial recognition. Plus, NetEase is nothing short of a gaming juggernaut, both for PCs and the high-growth mobile world. Blending unique content with licensed items, it offers more than 100 gaming titles. That gives NetEase a lot of hooks in a global market valued at $39.6 billion, more than one-fourth of which is based in China.
- Ctrip.com International Ltd. (Nasdaq ADR: CTRP) is like three companies rolled into one – like a blend of Expedia Inc., Priceline Group Inc., and Orbitz Worldwide Inc. As with most sectors, the air travel market is growing at stunning rates in China. It’s already the second-largest air travel market and, according to the International Air Travel Association, will overtake the U.S. market within the two decades.
- Bitauto Holding Ltd. (Nasdaq: BITA) offers internet content and online marketing services to China’s auto industry. A report by industrial consultants McKinsey & Co. predicts that SUV sales in China will triple by 2020, although passenger cars will still make up the majority of the market. And China is expected to contribute 34% of overall growth in the sector over the next five years. North America’s contribution is a mere 14%.
- Qihoo 360 Technology Ltd. (NYSE: QIHU) is a homegrown Chinese cybersecurity company. And that’s a very big deal given the lack of trust between the United States and China regarding cybersecurity. The Americans think Chinese software and hardware has spyware, and the Chinese think the same of our versions. This makes Qihoo 360 a winner for 1.4 billion Chinese and all their devices.
As you can see, to make money in tech stocks, you really need to know the lay of the land – and how to do the math.
If you listened to Wall Street – via CNN Money this time – you wouldn’t even consider a single Chinese Web play. After all, no investor wants to party “like it’s 1999.”
And you would have missed a sector that is virtually printing money.
Launched in 2014, EMQQ is now trading around $37.50. For that, you get a big chunk of a tech sector that is growing overseas much faster than here at home.
Then there are the superior returns. Since the beginning of this year, it’s gained 63%, compared with the S&P’s 14% advance.
So, you will definitely want to keep doing the math -and keep owning this fund.
That way you’ll be smarter than Wall Street.
And that’s something you can brag about.