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Chinese equities sell off resumes on fears of new crackdown on gaming companies

Chinese equities, including both companies listed on international exchanges and domestically, are suffering fresh…
The post Chinese equities sell off resumes on fears of new crackdown on gaming companies first appeared on Trading and Investment Ne…

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Chinese equities, including both companies listed on international exchanges and domestically, are suffering fresh drops in value after an article published in Chinese state media raised the prospect of a new regulatory crackdown on the online gaming sector. Chinese equities dropped sharply in July, with internationally-listed companies losing a combined $400 billion. Hong Kong’s Hang Seng Tech Index, launched just over a year ago to capture the performance of Hong Kong’s growing cluster of tech shares, ended the month down 17%.

China’s authorities have been putting the country’s largest companies under renewed scrutiny with observers attributing the regulatory crackdown to Communist Party officials making sure the corporate world does not lose sight of where ultimate power lies.

Ant Group, the financial services business spun out of Chinese e-commerce giant Alibaba, was forced to postpone a planned $37 billion IPO last year (that was expected to value the fintech company at a record $300 billion) after coming under pressure from regulators. Just days before the IPO was due to go ahead, Chinese authorities changed lending rules and suspended the listing pending Ant’s response as to how it would meet them.

Regulators have also recently targeted house builders and property investors in the country, recently changing rules around the maximum leverage they are allowed to be exposed to. That’s led to an unusual combination of property companies reporting soaring revenues and profits as China’s residential real estate market booms post-pandemic, while seeing their stock market valuations plunge.

A surprise recent announcement that private educational services for primary and middle school children should only be provided on a non-profit basis, and that companies offering such services should not be allowed to list as public companies, has devastated China’s $100 billion private tutoring sector. Already listed companies in the sector have seen their valuations ripped to shreds. TAL Education Group and New Oriental Education & Technology Group both saw their share prices plunge by up to 70% in a matter of days.

Investors with exposure to Chinese equities will have been hoping for a lull in the government’s targeting of sector after sector but those hopes have now been dashed after Chinese state media went after the online gaming sector where some of China’s most powerful companies make most of their money. The article by the Economic Information Daily newspaper asserted many of the country’s teenagers were addicted to online games, and calling them “spiritual opium” and “electronic drugs”.

The article went on to call for new restrictions on the hugely lucrative industry. Honor of Kings, a popular game made by Chinese tech giant Tencent, was namechecked as a prime example of damagingly addictive games, sending the company’s share price down over 10% at one point and reducing its value by $60 billion in Hong Kong trading yesterday before a recovery limited the final loss to 6%.

The bounce back came after Tencent released a statement saying it would introduce new restrictions to limit the access to games and time spent on them by minors. The company also said it would support a ban on children under 12 playing games online. The Tencent share price has recovered by 2.3% today.

Chinese gaming companies listed on Wall Street also took a hit yesterday with the share price of NetEase falling 11.4% on the Nasdaq yesterday. The mood wasn’t improved by Alibaba, China’s most valuable company, falling short of analysts’ forecasts for first quarter revenue.

Speaking to The Times newspaper, Ether Tin, a partner at Beijing-based consultancy Trivium, said the new sell-off was an indication of heightened investor nerves:

“They don’t believe anything is off limits and will react, sometime overreact, to anything on state media that fits the tech crackdown narrative.”

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Spread & Containment

Costco Stock Forecast and Review

When looking at a Costco stock forecast, there are a few things to watch out for. The predictions for growth continue for investors.
The post Costco Stock Forecast and Review appeared first on Investment U.

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Costco (Nasdaq: COST) is currently the world’s 3rd largest retailer by revenue (behind Walmart and Amazon) and is well known for offering wholesale prices to its members. To start with a Costco stock forecast, it’s important to understand the business…

For just $60 per year ($120 if you go with the “Executive Member” plan), Costco members can save money on gas, groceries and just about every product in between. Costco also owns the highly-coveted title for “The World’s #1 Seller of Rotisserie Chickens.”

Costco opened its first store in Seattle in 1983 and today has grown to 815 warehouses. From the get-go, its strategy has been to eliminate all the “frills” associated with retailers in order to cut costs. By cutting its operating costs to the bare minimum, it’s able to save money and pass these savings on to its customers. Common retail expenses that you won’t find at a Costco location are salespeople, fancy buildings or delivery options (groceries excluded).

Costco Saves for Customers and Investors

Over the years, Costco has become popular for saving its members tons of money. However, to shop at Costco you need to join its membership program which currently sits at just under 110 million cardholders. This equates to at least $6.6 billion in annual recurring revenue for Costco. However, the loyalty that this membership builds is worth much more than $6 billion.

When you sign up for a Costco membership, Costco automatically becomes your de facto place to purchase goods. Almost without thinking, you’ll pick Costco over Target, Walmart or Amazon because you know that you’ll save money by shopping at Costco. On top of the savings, you also want to make sure that your $60 per year commitment doesn’t go to waste. When it gets a new member, Costco wins twice. It gets $60 in annual recurring revenue and it also gets a large chunk of that person’s daily spending, potentially for the rest of their life.

Programs like Amazon Prime and American Airlines’ AAdvantage program have been successful for similar reasons. After signing up, Amazon Prime members will slowly get in the habit of ordering everything from Amazon. They want to take advantage of free 2-day shipping. Also, some diehard AA members will not even consider booking with another airline because they want to ensure that they’re getting rewarded for flying (through AA miles).

With this in mind, should you include Costco stock in your portfolio, even if you don’t have a membership card at home?

Let’s take a quick look at a Costco stock forecast as well as a few predictions for the stock moving forward.

Costco Stock Price Forecast

Note: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions.

Costco is scheduled to announce earnings on September 23, 2021.

In today’s investing environment, so much relies on the coronavirus pandemic. Did the company have a business model that thrived during the pandemic? Did it capitalize on this position? Will this success continue now that the pandemic is mostly over? In Costco’s case, these answers are yes, yes and yes.

Costco was undeniably a Coronavirus winner (check out these telemedicine stocks as well). People were prepping for the COVID-19 quarantines like it was the apocalypse and Costco’s wholesale-style business is literally designed to help people save money while prepping for the apocalypse. What’s surprising, however, is that Costco is actually getting more traffic now than it was B.C. (Before-COVID).

According to foot traffic data from Placer Labs, Costco’s monthly visits were up 13.8% in July 2021 as well as 12.8% in August 2021 (when compared to 2019 numbers). During its December 2020 earnings report, it reported that revenue from memberships rose 7%. It’s likely that many people opened a new Costco membership in hopes of saving money while it stockpiled quarantine supplies. Now, even though the pandemic is over, this buying habit remains.

Notably, Costco’s success is not an outlier within the industry. Other wholesalers like Sam’s Club and BJ’s have also experienced higher traffic.

Costco Stock Predictions

Costco is scheduled to announce earnings on September 23, 2021. Analysts are expecting EPS of $3.54 and revenue of $61.45 billion. Both of these numbers are higher than the previous quarter where analysts were expecting EPS of $2.28 and revenue of $43.28 billion.

Costco has beaten its last four revenue predictions as well as three out of four of its EPS predictions. However, since investors have set a higher bar for Costco, it may be more difficult for it to reach it. It’s very possible that Costco reports an increase in revenue but still falls short of investors’ expectations, which could result in a lower stock price.

In 2020, Costco posted total revenue of $166.7 billion and a net income of $4 billion. This completed five years in a row of growing revenues with an average yearly growth rate of 7.57%. Costco also has a dividend yield of close to 1% and razor-thin profit margins of 2.4%.

Costco’s stock was up about 30% in 2020 and is up 200% over the past five years.

Is Costco Stock a Buy?

When making a Costco stock forecast, there are a few things to watch out for.

Mainly, record inflation numbers recently could hurt Costco’s profitability in the short term. Since Costco is known for low prices, it will likely do its best to avoid raising prices even as inflation pushed its costs higher. A similar situation happened with Kroger recently. Higher costs with the same prices would mean less profit for Costco, who already operates on razor-thin margins.

If you’re looking for stocks that can profit on inflation, check out these agriculture stocks. They can pass along increasing costs to customers over time.

On the bright side, Costco was able to use the pandemic to thrive in both the short term and (potentially) the long term. Costco added more memberships during the pandemic, which should result in more loyal shoppers and higher revenues for the years to come. When looking at the long-term Costco stock forecast, the outlook certainly looks rosy. This is especially true since Costco dominates the wholesale retail industry as it faces little competition from Sam’s Club and BJ’s.

The increase in Costco’s membership is also important because Costco is due to raise the price for its membership fee. On average, Costco increases its membership fee by about 10% every 5-6 years. Its last increase was a few years ago, so this fee should be coming in the next 18 months or so. Due to the immense size of this program, even a 10% price increase would boost revenue from memberships by at least $660 million.

Its membership fee is a significant contributor to its gross margin, so this extra revenue could have a big impact on profitability as well as Costco’s stock price. Of course, this is assuming that the membership price increase doesn’t also lead to a drop in total memberships.

As usual, assigning a Costco stock price prediction in the short term is always difficult. This is especially true because there are plenty of other factors that could hurt the market overall. Market-wide moves could hurt Costco stock.

For example, there are rumors that the Federal Reserve will raise interest rates. This increases concerns over inflation, as well as a stock market that has run 90% since its March 2020 low. These are all things to keep in mind when determining whether or not to buy Costco stock in the short term. With that said, Costco stock is certainly positioned well for continued success in the years to come.

Investing Beyond Costco Stock

I hope that you’ve found this Costco stock forecast to be valuable in helping you determine a Costco stock prediction! As usual, all investment decisions should be based on your own due diligence and risk tolerance.

If you’re looking for even better investing opportunities, sign up for Wealthy Retirement. It’s a free e-letter that’s packed with tips and tricks. You’ll hear directly from bestselling author Marc Lichtenfeld. He’s an income expert who literally wrote the book on getting rich with dividends.

The post Costco Stock Forecast and Review appeared first on Investment U.

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Economics

MLB trade rumors and news: Padres DFA Arrieta, Severino pitches for first time since 2019

Photo by Jeff Curry-USA TODAY SportsThis could be the end of the road for the 2015 NL Cy Young winner. The MLB Daily Dish is a daily feature we’re running here at MLBDD that rounds up roster-impacting news, rumors, and analysis. Have feedback or have s…

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Photo by Jeff Curry-USA TODAY Sports

This could be the end of the road for the 2015 NL Cy Young winner.

The MLB Daily Dish is a daily feature we’re running here at MLBDD that rounds up roster-impacting news, rumors, and analysis. Have feedback or have something that should be shared? Hit us up at @mlbdailydish on Twitter or @MLBDailyDish on Instagram.

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Economics

Why Monday’s Decline Was So Shocking

It’s no secret that investors had become accustomed to a historic level of calm. We’ve been looking at this since the spring, it usually doesn’t last, and yet it did for months.Even with a late-day recovery on Monday, the loss in the most widely-benchm…

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It's no secret that investors had become accustomed to a historic level of calm. We've been looking at this since the spring, it usually doesn't last, and yet it did for months.

Even with a late-day recovery on Monday, the loss in the most widely-benchmarked index in the world was a rude awakening to those who believe that stocks only travel in one direction. Monday's session was more than two standard deviations from the average daily change over the past year. The only other day with a -2 z-score over the past year was May 12, which marked the bottom for that pullback.

It had been nearly 90 days since that "shocking" decline in May, which is a relatively long time. Over the past decade, this ranked as the 10th-longest stretch between shocking drops.

Most of us are concerned with the question of "so what?" To help give a clue, the table below shows every time since 1928 when the S&P 500 was within 5% and no more than three weeks removed from a multi-year high, then suffered its first -2 standard deviation move in at least four months. These show the times when reality paid investors an unwelcome visit.


What else we're looking at

  • Full returns after stocks suffer a shocking drop
  • What the risk/reward of all precedents suggest about the coming week(s)
  • Potentially ways to manage a couple of options trades that are now profitable
  • A quick update on copper
  • Looking at several mean reversal signals that have set up (but not yet triggered)

Stat box

Put option trading volume in equities and indexes across U.S. exchanges neared 22 million contracts on Monday. That was the 6th-highest reading in the past 5 years.

Etcetera

Heavy industry. Recent losses are weighing on sentiment in industrial stocks. Over the past 10 days, the average Optimism Index on the XLI Industrials fund has been below 25%, the 2nd-lowest in two years. These stocks tend to do well once sentiment starts to recover from a very low level.

xli industrial sentiment optimism index

Oscillators oscillate. The McClellan Oscillator for industrial stocks has plunged below -100, showing quick and severe internal selling pressure. It was above +50 as recently as the end of August. The current reading is on par with the most severe reactions in the past year.

xli industrial mcclellan oscillator

Sell (almost) everything. Heavy selling pressure is also evident in the 10-day advance/decline line for industrials. It's showing an average of nearly 20 more stocks declining than advancing, nearing the most lopsided selling pressure since the pandemic crash.

xli industrial advance decline line

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