Turnaround continues at China stock pick Home Inns and Hotels
Home Inns and Hotels Management (HMIN) announced first quarter earnings today, May 13, of 4 cents a share (excluding one-time items). That was 9 cents a share better than the 5 cents a share loss projected by Wall Street analysts. Revenue climbed 11.7% year over year to $225.8 million, well above the $219.2 million consensus.
The quarter continued the turnaround that was visible in the company’s fourth quarter results.
The company saw a slight drop in RevPAR (revenue per available room) to $131 in the quarter from $132 in the first quarter of 2012. But revenue grew as occupancy rates climbed to 83.6% in the quarter from 80.7% in the first quarter of 2012.
The big story, though, continues to be the improvement at the Motel 168 chain the company acquired in 2011. For the quarter RevPAR for Motel 168 improved 4.5% year over year and the occupancy rate climbed to 76.7% from 70.4%.
In its guidance the company affirmed its target to open 360 to 380 new hotels in 2013, including 80 to 90 leased-and-operated hotels and 270 to 300 franchised-and-managed hotels. Total revenue in 2013, the company projected, would fall between 6.6 billion and 6.8 billion renminbi. That would be equal to growth of 14.4% to 17.9% for 2013 over 2012.
As of May 13, I’m raising my target price on the New York traded shares of this Chinese hotel company to $37 a share from my current target of $34. Home Inns and Hotels Management is a member of my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ 12-18 month portfolio.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Home Inns and Hotels Management as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
Lessons from 2012 for profiting in the recent rally
So now what?
We’ve had a December sell down on fears that the United States would go off the fiscal cliff—the Dow Jones Industrial Average was off 2.48% in the fourth quarter.
We’ve had a huge pre-New Year’s move—the Standard & Poor’s 500 Stock Index climbed 1.7% on December 31 on hopes that the crisis would get resolved and an even bigger January 2 move on an actual “solution. The total gain comes to 4.3% for the two sessions.
But where does the market go from here? I think you can guess, right? After all we did go through this pattern of sharp rallies and deep retreats in 2012.
So with the benefit of that experience, let me give you my seven steps for the first half of 2013. Read more
If the fiscal cliff does deliver a buying opportunity, here are 10 stocks for putting money to work in 2013
While we’re waiting for Congress and the President to come up with a deal to extend the Bush tax cuts, avoid automatic spending cuts, fix (again) the alternative minimum tax, keep the Social Security withholding tax break, and extend extended unemployment benefits, let’s think for a minute about what happens if there is a deal.
If sometime in the next few days or more likely at some point in January or at a worst case sometime in February, there is a deal, the financial markets get to breathe a big sigh of relief. We might even see a rally—of exactly the sort that you raised some cash for during this past week or so.
What would you look to buy? What’s a reasonable list of 10 best stocks for 2013?
The stocks part is simple I think. It’s the 2013 part that’s hard.
As in 2012, macro trends will drive the financial markets in 2013. In 2012 the year—and the markets—were defined by fears that China’s economy would slow to a hard landing, that the U.S. economy would stall or that the U.S. government would prove so dysfunctional that the country would default on its debts, and that in the EuroZone Greece, Spain, or Italy would fall into financial chaos.
When those worries moved to the top of investors minds, financial markets fell. When those worries receded and it looked like the financial world wasn’t headed off one cliff or another, financial markets rallied.
Two things should worry you as we head into 2013.
First, if you look past the worries about the U.S. fiscal cliff, investors, Wall Street, and economists are actually relatively optimistic as 2012 ends and 2013 begins. That’s the big reason that stocks—especially U.S. stocks haven’t sold off heavily on continued bad news about negotiations—or the lack thereof—on the financial cliff. Consider this story that crossed the wires just about a week ago: Corporate earnings in China will climb by 10% in 2013, according to Russell Investments, and Goldman Sachs raised its economic forecast for China for 2013. Why is this a worry? Because some stocks and some markets are starting the year discounting a hunk of good news and that lays the foundation for disappointment. It’s important to remember that once we get past the fiscal cliff, 2013 could still turn out to be disappointing.
Second, it’s likely that the narrative for 2013, like that for 2012, isn’t going to unroll in a straight line. We’re likely to be disappointed to learn by the end of 2013 that the EuroZone “solution” for Greece doesn’t work, and that the U.S. economy just can’t seem to build up enough speed to generate gobs and gobs of jobs. And to get giddy when we learn that China’s growth has reaccelerated to 8.5% and that the auto industry is back (and not just in the United States.)
So what do you do with a year like 2013? (To be sung to the tune of “How do you solve a problem like Maria?”)
I think you divide your 10 best stocks for 2013 into three parts. Read more
“Good” China stocks and “Bad” China stocks and how to use them
If China’s stock markets are headed into a rally, it’s time to take a look at what I call Good China stocks and Bad China stocks.
It’s too early, in my opinion, to be sure that we’re going to see one of those explosive 40% to 80% moves off a bottom that China’s equity markets deliver from time to time. We do have a huge drop in the Shanghai Composite Index, which in late September was down 70% from its October 2007 levels. And the index did bounce off of the psychologically important 2000 level on September 26. And the index is up 5.1% from that September 26 low to the October 17 close. (The Shanghai index has trailed Hong Kong’s Hang Seng Index, which is up 11.9% from its low on September 5 through October 17.)
BUT China’s markets have rallied on anticipation—on hope in other words—of more aggressive stimulus measures from the Beijing government in the run up to and the days after the official transfer of power to a new leadership team that is scheduled to take place on November 8 at the 18th Party Congress. That stimulus could be less aggressive than expected or it could be ineffective. (For more on why this stimulus could be way less effective than the last round see my post http://jubakpicks.com/2012/10/02/the-next-macro-event-that-will-drive-global-stocks-my-bet-is-on-announcements-of-new-stimulus-from-china/ And it’s quite possible that the 7.4% growth rate for the third quarter, announced on October 18, doesn’t mark the bottom for China’s growth in this cycle.
So we don’t know and won’t know until we see numbers for growth from the fourth quarter (sometime in the first quarter of 2013) or from the first quarter (sometime in the second quarter of 2013.)
If the current stimulus hopes turn into disappointments, I think we’ll see a rally on hope that continues the current move up—until the disappointing data arrive sometime in the fourth quarter of later.
And if the stimulus hopes turn into a real turn in China’s economy, and the third quarter of 2012 does turn out to be the bottom for China’s economic growth rate, then I think we could see a more restrained version (restrained slow growth in Europe, China’s biggest trading partner) of the traditional explosive rally in Shanghai and Hong Kong. Even if that rally is more restrained than usual, it will be worth owning a piece of it. (This, by the way, is my current read. The third quarter numbers showed a decided pick up in growth in September, the last month of the quarter.)
But how? China’s stocks are notoriously volatile and frighteningly opaque. Many investors are rightly afraid that any Chinese stock they buy will turn out to be a fraud based on creative accounting. Certainly there have been enough examples of that—Sino-Forest and Longtop Financial come to mind. And even if the company ultimately turns out not to be a fraud, a short-selling attack on a Chinese company stands a good chance of success because so many Chinese companies are opaque and hard to understand.
In response to that truth about the Chinese market and in order to derive an investing strategy responsive to the unknown potential of what looks to me to be the early stages of a significant rally, I’ve come to think of China’s stocks in two groups. You can call them Bad China stocks and Good China stocks.
Usually when investors talk about “good” and “bad” stocks they mean that “good” stocks are those that they’d buy and “bad” ones are those that they’d shun.
Here I mean something slightly different. Read more
Home Inns and Hotels delivers more than enough to send the “sell on the news” traders for a loop
The ADRs (American Depositary Receipts) of Home Inns and Hotels Management (HMIN) dropped another 2.53% yesterday as traders continued to sell into the company’s after-the-close second quarter earnings report.
Surprise! The Chinese budget hotel company delivered enough to confound the sellers. And to disappoint those of us hoping to buy more on any sell-on-the-news dip. (Home Inns and Hotels Management is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )
The ADRs were headed to a gain of 4.15% in the minutes before the August 10 close.
The company reported earnings of 34 cents an ADR, 3 cents above the Wall Street consensus. Revenue came in at $228.2 million, well ahead of the $214.8 consensus. That was good enough for 60.2% revenue growth from the second quarter of 2011.
But what really turned sentiment, in my opinion, from sell on the news to got to get some was the company’s guidance for the third quarter of $243 million to $248 million in revenue—versus the $238.3 million consensus—and the increased guidance for all of 2012 of $899.6 to $914.5 million in revenue against the $871.9 million analyst consensus.
As of August 10 I’m raising my target price slightly to $34 a share by May 2013.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Home Inns and Hotels Management as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
