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In the stock market, one language everyone understands is Profits.
Today, with growth stocks popping up all over the world, eSignal subscribers should be alert to new opportunities whether in Asia, Latin America, Europe or even Africa.
In times past, it was a tricky business buying an overseas stock. Generally, one would attempt that venture through a mutual fund, putting his or her confidence in the fund manager’s ability to know the ins and outs of the foreign business market.
In fact, the best-performing mutual fund in the past five years, according to Morningstar, is the U.S. Global Investors Eastern European Fund with a 34.4% average annual return. The ING Russia Fund is third at 33.1%, and also doing well is Matthews Korea Fund at 22.5%.
Today, more overseas stocks are being traded in the U.S. market, giving aggressive investors an opportunity “to swing for the fences.” The fundamental information available is good in most cases and the potential to nail big winners excellent because some overseas markets are expanding sharply. When looking for a good overseas stock play, one should check five basic things:
- The trend of the foreign stock market
- Industry strength of the stock
- The firm’s earnings
- Management
- The stock’s technicals
One overseas stock doing very well now is NetEase.com Inc. (NTES), based in Beijing, China. The company operates an Internet portal with various e-commerce services such as email, chat rooms, pay-for-use wireless services and online games. It has 225 million registered users.
The Chinese Internet market is growing strongly and so are NTES’ earnings. Its stock is performing superbly too. Since February 2005, NTES has climbed from $40 to $84.80. The stock had a powerful gap move higher in early August of some 12 points in one day when the company surprised Wall Street and came in with much stronger-than-expected earnings. The trigger: A 147% surge in profits.
This year, NTES’ earnings are projected to soar 93% to $2.97 a share from $1.54 a year ago. The stock sells with a modest price-earnings ratio of 28 based on this year’s net. Next year, earnings should rise 33% to $3.96 a share. The firm has annual revenues at approximately $110 million. The stock is now (mid-September) emerging from a six-week base at 80. It’s up trend remains strong, and it is a leader in the Chinese stock market. The company’s founder and former chairman, William Lei Ding, owns 50% of the stock.
Grupo Televisa S.A. (TV) is Mexico’s largest TV broadcaster with 4 networks and 260 affiliated stations. It also publishes magazines, owns 3 soccer teams and a sports stadium. Annual revenues run at approximately $2.6 billion.
The stock is a bull market winner, soaring from 23 in early 2003 to 70. Technically, the up trend remains favorable because the stock recently emerged from a well-formed, 8-week base with a significant pickup in volume. It is acting strong.
This year, Televisa’s earnings should hit $3.40 a share. Comparable results from last year are not available. Next year, profits should climb 33% to $4.53 a share. Revenue growth in the fourth quarter should be strong due to increased political advertising for the Mexican presidential election. The strongest revenue growth is coming from the firm’s Sky Mexico unit at 37%, pay TV networks at 28% and cable at 16%. Chairman and CEO, Emilio Azcarraga Jean, owns 49% of the stock through a trust.
eSignal subscribers should also be on the lookout for recent overseas initial public offering (IPO) stocks. One doing well now is Taiwan-based Silicon Motion Technology Co. (SIMO). It develops and markets semiconductor products for the multimedia consumer electronics market. Annual revenues are $70 million.
SIMO’s products include controllers used in mobile storage media (flash memory cards and USB flash drives) and multimedia systems on a chip (used in devices such as MP3 players, PC cameras, PC notebooks and broadband multimedia phones). It sells to Hewlett-Packard, Intel and Siemens.
The stock went public at $10.50 in July. It is now at $12.93, having recently emerged from a base. SIMO’s first-half revenues climbed 36% due to increased sales of mobile storage products. Profits were up some 300%, thanks to lower selling and marketing expenses. This year, SIMO’s earnings should climb to 65 cents a share. That gives the stock a price-earnings ratio of 18, which is reasonable. Year-ago, per-share results were not available. Going out to 2006, SIMO’s net should climb 27% to 83 cents a share.
For the next two quarters, SIMO’s profits should rise sequentially. Profits for the third quarter should be 16 cents a share and, for the fourth quarter, 22 cents a share. That would indicate an acceleration in growth, which is very bullish.
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