The Rest Of The Story: Grekxit

INVESTORS RED ALERT: Greek Default Comes with a 30 Day Grace Period!

The world’s markets including the major U.S. Indices have been in retreat since last Friday, June 12.  Down over 250 points!

The Greek Government and their European counterparts don’t appear to be in a position to come to a mutually acceptable agreement. A Greek default on its international debt looks increasingly likely. The politics in Greece actually favor financial suicide in the event that no deal is struck.

Yet, a default by Greece would come with a 30 Day grace period that few on Wall Street are pointing to. That extra 30 days may give both sides enough time to salvage a coherent mutually acceptable compromise deal.

The problem however with this extra 30 day grace period is it will drag on to the 11th hour, come with many emotional swings between hope and despair. These manic swings could seriously disrupt the world’s financial markets, and increase the magnitude of the rallies and selloffs to the point that investors could be hit with a serious case of financial whiplash!

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Investors should be extremely careful going forward until the situation becomes clearer.

Unless, calmer heads prevail on both sides this dispute, could result in several 200, 300 even 500 point swings on the Dow Jones Industrial Average in the next few weeks.  Investors should keep in mind the historically low volume in the U.S. and European markets in the summer months. This could compound the volatility making this an even hotter and dizzier summer than normal for equity and bond holders around the world.

Rebel Yell: VIPShop Holdings ADS (VIPS) Update

Our recommendation of VIPShop Holdings ADS (VIPS) last week (June 10, 2015) is starting to pay off. Using ErlangerChartRoom.com analysis, VIPS looks like it could easily run $7 higher in the next couple of months. 

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The correlation between the price movement of the stock and EC Spread, give us great confidence in the follow through in the upward momentum.

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Today’s sell off based on the macro-economic concerns over Greece is giving you another chance to buy VIPS under $25 a share. These types of macro-economic sell offs can drive the market to deeply oversold levels that can act like spring boards to much higher levels as the sell the rumor, buy the news event plays out. A rally from a deeply oversold position can be especially powerful for high beta stocks like VIPS.

Recommendation: BUY VIPS at $25 or less.

Rebel Yell: A Great China Play

One of my favorite plays on China the past couple of years has been Vipshop Holdings Limited (NYSE: VIPS). It began to trade in 2012 at a price of $0.44. As such, the stock has had an amazing run but the best could be yet to come.

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Headquartered in Guangzhou, China and possessing a market capitalization of just under $15.4 billion, Vipshop Holdings Limited offers both a broad universe of popular brands of discount of consumer goods for the massive Chinese market via its Internet Websites and direct email offerings.

VIPS also offers high end online hosting and marketing support for many of the Chinese-based third party Internet vendors that lack the infrastructure to execute the needed Internet technology.  So how exactly is a business model of this size attractive to potential long-term investors? The attraction, in all honesty, comes in the fact that Vipshop is spending a majority of its efforts exploiting the highly underdeveloped  concept of buying at a DEEPLY DISCOUNTED PRICE INSTEAD OF PAYING full the full retail prive. Discounting in stores in China much less the ability to buy at a deeply discounted price online is something very new in China. The Chinese consumer has until the last few years been sold on the concept that buying products at a “DISCOUNT PRICE” somehow cloaks the consumer as being cheap. The Chinese consumer for years believed paying the full price was the only honorable way to shop.

Vipshop platform provides the infrastructure for a large number of Chinese-based third-party discount retailers to liquidate inventory. For example, if a company was looking to get rid of excess inventory of Women’s dresses, Vipshop can assist in the both brand management of that retailer market and sell the retailers inventory for a cut of the sales.

Vipshop Holdings: A Solid Start to 2015

Before we get into some of the meatier details of how the company operates and where its strengths lie, I wanted to first take a look at its most recent earnings performance. Vipshop’s first quarter revenue of $1.4 billion was 98% higher on a year-over-year basis and slightly above consensus estimates of $1.3 billion. Its non-GAAP EPS of $0.13/share was also ahead of the consensus estimates of $0.10/share but it was the second quarter guidance that may have worried some investors with revenue coming a bit below the consensus estimates of $1.42 billion.

Vipshop’s net income on a year-over-year basis has significantly exceeded that of both the S&P 500 and the Internet & Catalog Retail industry. Its net income increased by just under 123% when compared to the year-ago period, rising from $26.59 million to $59.29 million.

Nonetheless, operating metrics are all hitting the right notes with total active customers recently exceeding 12.9 million despite the company shifting focus away from its former group-buying business. It should be noted that repeat customers accounted for over 90% of VIPS total GMV and this highlights the platform’s stickiness after the company expanded into the baby, maternity, cosmetics and home goods space. From an overall revenue generation standpoint, its cosmetic segment contributed more than double the year-ago period.

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China: Huge Market Potential For Online Discount Retailers

When it comes to the China, one of the first words that come to mind is clearly the word opportunity. Having one of the largest and most condensed populations, China possesses huge market potential especially when it comes to the online-based discount retail segment. In the first graphic below we can see the rapid rate of growth the market is currently displaying and it is in these numbers that we get a tangible feel for what exactly Vipshop does as a retail-oriented platform.

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Over the last five years we’ve seen the Chinese Retail Market jump from generating the equivalent of $2.53 Trillion US Dollars in 2010 to generating the equivalent of $4.23 Trillion US Dollars in 2014. Based on those specific numbers, we can see that the Chinese Retail Market has demonstrated an average CAGR of 13.43% between 2010 and 2014. That being said (and using the same CAGR rate of 13.43%), I strongly believe that we could see the generation of the equivalent of at least $5 Trillion US Dollars by the end of 2016.

Vipshop’s approach to capitalizing on the opportunity at hand is actually quite simple. By understanding the fact that consumer demand continues to grow at record levels and that a constant supply of excess inventory enters the third-party marketplace on a daily basis, Vipshop is now able to attract more and more buyers. At the end of the day it comes down to the fact that consumers are always looking for bargain, and if that bargain exists online instead of in-person, many consumers would rather click a mouse then travel to a specific brand’s physical retail location.

A Brief Look At Why More & More Retailers Are Choosing Vipshop

One of the most interesting catalysts to consider when it comes to Vipshop isn’t something we’ll find in a single-page earnings recap or in the first few paragraphs of an analysts’ recommendation. Rather, it’s a metric that was most recently displayed during the company’s first post-earnings presentation of 2015 which highlighted the exponential growth of the number of brand partners within Vipshop’s portfolio.

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Over the last five years we’ve seen the number of Vipshop’s Brand-based partners jump from 411 in 2010 to an unprecedented 7,110 in 2014. What’s the driving force behind these particular numbers, you ask?

In order to be successful in any niche of the retail market (either online or offline) one must possess a number of key characteristics, especially when dealing with third-party vendors. For example, one must be a seasoned industry leader who puts the concepts of brand integrity, inventory monetization, and the behavior of the individual customer at the forefront of each and every brand they represent and as long as Vipshop continues to do that there’s no reason its partners will not jump well past 10,000 by the end of 2016.

BUYING OPPORTUNITY!

Chinese companies have been taking a beating on Wall Street even as they have doubled and redoubled over unfounded rumors of phony accounting. It’s become the same repeated false narrative that somehow companies including VIPS are not complying with U.S Securities and Exchange accounting and filing. THIS IS NOT TRUE!

A combination of both a lack of understanding, ignorance and concern over an economic slowdown in China has knocked more than 20% (over $7 off the share price of VIPS in recent weeks). While China is experiencing a economic slowdown, the fact is the Chinese consumer is still buying. The number of middle-class Chinese is also growing rapidly.

Brokerage firm Stifel on May 26, 2015 initiated a BUY on VIPS with a target of $32  Share. This gives an upside of 34% from the current share price.

VIPS has big upside potential.

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I consider the downside target risk to be only 10% from the current level. While the upside in the short term to be over 67%.

Current Recommendation:

Open a new initial position on a dip below $25 a share. Begin to double or even triple your position in the event that shares of VIPS drop to $21 or lower. This should be a great addition to any portfolio especially if shares can be acquired at these very attractive levels!

My upside target is $33 a share by the end of the year  and could hit $41 especially if Alibaba (BABA) were to bid for it.

Even without a bid for the company, I believe that Vipshop Holdings (VIP) will continue to monetize the massive amount of China’s heavily underdeveloped discounted retail marketplace.  Assuming Vipshop can also continue add a significant amount of brand-based partners over the next 12-36 months, we could see VIPS share price vault to over $100 a share.

 

 

OPEC To Maintain Current Output

OPEC just announced that it will maintain its current output noted the Saudi Oil Minister. Let’s see how oil trades by the end of the day. We will weigh in after the close in our Rebel Yell column on the markets reaction and how to trade energy markets for the rest of the summer.

Rebel Yell: Huntsman (HUN) Looks Ready To Buy

Is Huntsman Corporation (HUN) a Buy, Sell or Hold?

For those of you following my recommendation and updates of Huntsman Corporation (HUN) the following is a brief refresher and update. I’ll be updating and re-examining all of the stocks I have been covering –  FREE here in Wall Street Rebel.

Huntsman Corporation (NYSE: HUN) was founded in 1970 and is based in Salt Lake City, Utah is a worldwide Chemical Manufacturer operates approximately 100 R&D-based facilities in over 30 countries. Its products are used in various applications, including adhesives, aerospace, automotive, construction products, personal care and hygiene, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals, and dye industries. Huntsman Corporation a market capitalization of just under $5.6 billion and although it is a tightly held corporation I believe it may become a takeover target in the next 12-24 months thanks to a number of initiatives the company has undertaken in recent months.

An Overview of Huntsman’s Recent Projects

Huntsman’s business model can be broken down into the following five units: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments and Additives. And it is within these segments that many of the company’s most recent projects encompass.

In the referenced image above we’ll notice that Huntsman has a 100% ownership interest in six of the eight noted projects. These six projects include but are not limited to MDI expansion through its polyurethane segment in both the US and Netherlands, EO expansion through its Performance Products segment in the US, and lastly the expansion of its Multifunctional Resin operations through its Advanced Materials segment here in the US.

From a capital expenditure perspective, it should be noted that the company spent $601 million throughout 2014 and estimates it will spend $625 million throughout 2015.

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Huntsman’s Diamond In The Rough: Aerospace Revenue Growth

One of the most compelling points of interest for an investor to consider when it comes to Huntsman is clearly the revenue that is being generated by the Aerospace unit of its Advanced Materials segment.  For starters, its CAGR between 2009 and 2014 was a very impressive 14% and if orders to continue to pile on (especially when it comes to the 125 Airbus A350’s and the 48 777x’s that are due to be completed by 2017) there’s a very good chance its CAGR could exceed 17.5% by Q4 2017.

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In addition to the above mentioned completions we, as both existing shareholders and potential investors, need to keep a close eye on both Huntsman’s ability to demonstrate both double digit revenue growth within the unit and maintain the rate at which long-term builds are completed. If Huntsman is capable of showing consistency in both areas, there’s a very good chance its stock will demonstrate very favorable returns over the next 24-to-36 months.

The Restructuring of its P&A Segment Could Mean Stronger Long-Term Growth

Anytime a company intends on increasing its cost savings by reducing operational expenses, radars start to flash and potential investors begin to take a closer look at the company’s plan. In the case of Huntsman the plan is a simple three-step process that clearly spells out how the company plans on demonstrating a $175 million dollar reduction in costs.

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The process, which encompasses a work force reduction, the closure of its Calais, France TiO2 facility and the consolidation of four US-based Color Pigment sites includes the removal of just under 1100 full-time positions and nearly 100 KT (kilo-tons) of pigment-based capacity. Although the reduction in capacity is a notable variable, Huntsman realizes the most cost-related savings through the elimination of nearly 1100 jobs. With that said, I don’t think the company its entirely finished with its P&A restructuring, especially since there’s a slight chance we could see the company’s P&A cost savings exceed $200 million by 2018 given the measures it has taken since the start of 2015.

Should we expect similar cost savings initiatives to occur within Huntsman’s remaining segments? In no uncertain terms, the answer is YES. Given the impressive success of its P&A cost savings initiative (that was first enacted in early 2015), there’s a very good chance we could see both job cuts and the sale of its underperforming non-core assets sales occur in the next 24-to-36 months.

Huntsman Prepares Itself For A Major Boost In The Demand For Polyethramine

On May 5th it was announced that Jacobs Engineering Group (NYSE: JEC) had been awarded an engineering, procurement and construction management (EPCM) contract for an expansion program at Huntsman Corporation’s world scale polyetheramine facility in Singapore.

It should be noted that Polyetheramine is used as an ingredient or additive to improve the properties of many products, including paint, adhesives and composites and since Huntsman is a major producer of all three, an increase in global demand could some serious profitability over the next 7-to-10 years. From an infrastructure perspective, Jacobs will be responsible for the detailed engineering and design, procurement of major equipment, and the subsequent management of all construction services. Initial project-based construction is expected to begin by mid-2015 and be completed by late-2016.

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Recommendation: Open a new positions on a dip to $22 a share or lower. This should be a great money maker if you can get your shares at these very attractive levels!

My upside target is over $30 by the end of the year assuming that Huntsman’s cost-saving initiatives don’t go beyond its P&A segment. If such initiatives encompass the company’s additional segments, we could see HUN’s share price vault over $$34 a share.

 

Worth A Look Anadarko

Anadarko (APC) is one of the largest independent oil and natural gas explorers and producers(E&P) in the world. I believe it will eventually become a takeover target and that’s why I have recommended it many times over the past few years with very profitable results.

In late November, for example I recommended APC and after writing some covered calls against the 400 share recommended position was able to lower the cost basis on that position to $78.61 a share. That position was closed out at $85 when the shares, or those remaining were assigned at expiration, the covered calls rallied into the money.

Those following my recommendation should have netted approximately $6.39 a share times the 400 shares recommended for a profit of $2,556 net profit. A profit of about 8% in just under 3 months ago.

I recommended re-entering APC with 400 shares at $82.50 in February because I believe the E&P is a prime takeover target, that could receive a merger/buyout offer of $128 to $134 a share.

The institutional analysts covering APC are starting to ALSO turn bullish – something I expect most analysts on Wall Street didn’t think would happen this quickly. Consider for a moment the pessimism in the oil market just a few months ago with major analysts predicting $30 oil.

Now most analysts are turning bullish on APC with targets has high as $117 a share.

Erlangerchartroom.com sentiment indicators are STILL leaning bullish but creating enough concern about a retest of its April breakout that its share price is dipping below $88 a share. This is setting up an incredible buying opportunity. WTI is now trading for over $60 a barrel again. I’ve predicted we would see BRENT claim back between $70 and $75  before the end of the year, with a nice rally into the beginning of summer.

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Recommendation: Open a new position on a dip to $88 a share or lower. Double your positions in the event that APC dips to $86 or lower. This should be a good money maker if you get your shares at these levels!

My upside target is over $100 by the end of the year assuming there is no takeover or merger. If one materializes we could see APC’s share price vault over $120 a share.

Gold Prices Plunge! What Does This Mean For Its Future?

“The yellow metal is down 24 percent from its highs. Is this the end of the gold bull? Or is it a temporary correction?

“I believe it’s temporary! In fact, I expect to see huge amounts of capital flowing back into gold, taking the prices far above their previous highs. Here’s why!”

We’re only 4 months into 2013, and we’ve already had a series of historic financial crises.

Investors have been bloodied in multiple markets. And the battering hasn’t yet run its course.

For maximum success in our investing, we need to anticipate the strongest trends, and get in front of them. Right now, one of the largest global trends is…

Fear!

Investors are scared, and rightly so. Even the assets that used to be safe are risky now.

Nevertheless, wherever there is danger, there is also opportunity. When oceans of capital move from market to market, there are big winners and big losers. If we want to flourish as investors, we need to follow the money. We must anticipate where it’s going, and get there first. That’s when tremendous profits can be made.

Right now, the world is awash in liquidity that’s flowing from one asset to another. The markets are scared and confused. That’s why we’re seeing such truly bizarre events, like a crash in the price of gold even as global central banks have printed almost $17 trillion (!) in new money. [Read more…]

A Small Island in the Mediterranean Sea Reminds Us of Risks of the Global Financial System

Another Energy Company Recommendation

Summary

  • The Cyprus banking crisis was a major recent event, and it reminds us of the global risks investors face.
  • The markets reflect the many positives of the economy: an accommodative Fed; low inflation and interest rates; earnings and cash flow growth; improving real estate markets; energy is a bright spot in the economy; alternative investments potential are limited making stocks attractive.
  • The markets are up about 11% year-to-date, how much further can they go?
  • Last month we looked at the U.S. outlook for oil, this month we look at the global oil outlook
  • Global demand is expected to increase in 2013.
  • Global surpluses have improved, and is helping stabilize prices but not bring them down significantly
  • I try to answer the questions, how much oil does the world have, and how long will these global reserves last?
  • This month’s recommendation is another high yielding Canadian energy company. [Read more…]

“Don’t Be Deceived: The Shortage of Cheap Oil is Real, and Long-Lasting!”

“Recent media reports claim that new reserves like the Bakken formation will provide abundant oil, make America self-sufficient, and bring oil prices back down. Rubbish!

“Oil prices will remain high for years to come. Here are seven reasons why!”

As the name of this publication indicates, we focus our investing efforts on gold and energy—especially on crude oil, the most important form of energy in the modern economy.

There’s been a gusher of news reports lately, telling Americans that we’ll have abundant crude oil for the next decade or more.

For example, the current World Energy Outlook report from the IEA (International Energy Agency) predicts that just five years from now, the United States will pass Saudi Arabia to become the world’s largest oil producer. The New York Times went even further, reporting that the US is on track to be “all but self-sufficient” in oil.

Even Harvard University has joined the fun. It published a report called “Oil, The Next Revolution: The unprecedented upsurge of oil production capacity and what it means for the world.” That report included cheery graphics like this one: [Read more…]

Collectors, Investors and even Rare Coin Dealers, Falling Victim!

Some new suggestions on how to buy and sell safely!

By James DiGeorgia

Over the years I have preached to collectors and investors just like you, to be careful not to give their rare coins and or precious metals to ANY dealer or broker for storage.

Having literally grown up and in the rare coin and precious metals market, I have seen virtually every scam and convenient bankruptcy possible. Among the most expensive have been the collapses of so called “independently audited” storage facilities as well as brokers and dealers that issue “certificates of precious metals deposits”.

In my opinion, if you don’t take physical possession, you’re setting yourself to be robbed. Always take physical possession, rent a safety deposit box and store your precious metals and rare coins on your own. The cost of insurance for even a great deal of value is very inexpensive.

Besides storage risk, there’s a growing risk of being scammed in the rare coin and precious metals business that you must not ignore. This rising threat is not only putting investor/collectors like you at risk, but this scam has also put professional dealers with decades of experience at risk. [Read more…]