China, Delta, Earnings!

Volatility Is Back!

Aug 1, 2021

China, Delta, Earnings!

“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” Benjamin Graham

by Alex Cunningham on Aug 1st, host of Market Adventures Podcast

Welcome to the Market Adventures monthly newsletter! I’m glad you’re here and even more excited that you’ve taken an interest in the stock market. Below you’ll find market information, education, and opinions. I’ve also included affiliate links for various services that I utilize in my investment journey. Feel free to take advantage of the opportunities. If you’re getting this and you bought the stock market 101 course, this is where you put that information to work. You’ve learned the basics, now you see some real life examples.

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“This newsletter and all related Market Adventures content is not investing advice. Everything you are about to read is merely the opinion of the writer. Please seek the counsel of a financial advisor prior to making any investment decisions. Though the stock market does present many opportunities to make money, there are an infinite number of ways to lose all or more than your original investment. That being said. Don’t invest or trade in any security mentioned in this publication or its related content.” Now that that’s out of the way…

China Business Crackdown

Billions In Market Value Erased From US-listed Chinese Companies

July was filled with escalating government regulation in China on many of its largest companies. Alibaba, Tencent and various education related businesses were made examples of in an apparent attempt to reaffirm control. The world’s 2nd largest economy has maintained an economic policy that allowed it to rise rather rapidly in the last century. However, it seems that leader Xi sees a need to tighten the reins. The most recent news, after their crackdown on DIDI (Chinese Uber), was that they might consider forcing all education related companies in China to become non-profit.

Popular money manager Cathy Woods announced that she had sold much of her stock holdings in Chinese companies. She’s not the only one. Take a look at these charts.

Alibaba

TAL Education Group

Best Approach To Investing In Chinese Stocks

There are 3 ways to look at this. What are the facts?

The Risk:

China is a risky investment because the government can act with impunity and prioritizes control over economic interests. Buying Chinese stocks is not smart because you could lose a lot of money if the government decides to discipline a company or change an industry. Again, very risky.

The Reality:

The Chinese government has always been authoritarian and still their economy has grown at an unprecedented pace. With that, many investors in the Chinese economy have made fortunes irregardless of potential or actual government action. Moreover, China’s economy is so intertwined with the global economy that there is virtually no way they can completely remove themselves from foreign investment. That means that there will always be a margin of safety in certain asset classes.

The Opportunity:

There’s already been so much bad news. Could it get worse? Possibly, but the floor is much closer than the ceiling with these stocks. Publicly listed Chinese stocks, as a group, are far cheaper relative to their counterparts around the world, relative to where they’ve been in the past. When you find quality companies at a DEEP discount, you buy.

Yeah, to many new investors-the US stock market looks much more appetizing. High prices and widespread optimism lures the masses in because they feel safe amongst the crowd. However, the rich are the ones who get there first.

Make no mistake, if this is the end of bad news out of China regarding government interference in business, there will be a lot of money made when the quality Chinese stocks make their way back to true value.

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The Broader Market | S&P 500

What’s The Buzz In The Market

Okay, so we just talked about the craziness coming out of China. Another headline, more globally this time, is the rapid spread of the Delta variant of the Covid 19 virus. Recently, the CDC changed its guidelines for masks and has now recommended masks be worn by everyone indoors, even those who’ve been vaccinated already.

In addition to that, businesses have pushed back return to office dates and are likewise enforcing localized mask mandates as well.

On another note, earnings from the largest companies in the world ended the month unimpressively. Most of the FAANG stocks beat their earnings estimates, with the exception of Amazon.

The Federal Reserve noted an increase in inflation and progress toward their economic goals, but suggested there was still a way to go. Interest rates remain near zero.

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Open Interest: Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled. Increasing open interest represents new or additional money coming into the market while decreasing open interest indicates money flowing out of the market. (source: Investopedia)

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Dividend Stock Investing: MPLX (9.69% yield)

High yield with a healthy dividend history.

Company profile: MPLX LP is a master limited partnership (MLP) formed by Marathon Petroleum Corporation (MPC) to own, operate, develop and acquire midstream energy infrastructure assets. The Company is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of natural gas liquids (NGLs), and the gathering, transportation and storage of crude oil and refined petroleum products. MPLX is one of the more profitable companies in the Oil, Gas & Consumable Fuels industry with a net margin of 31.15%. Its operating margin and net margin are among the strongest of any peer while its gross margin is above the industry median.

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Cryptocurrency Opportunities

A Look At The Big Boys

Bitcoin (BTC/GBTC)

Profit Target $6000 (46%) | Near-term resistance: $48000 (17%)

A lot of news circulating around about crypto lately, particularly Bitcoin. Late last month, Twitter CEO (Jack Dorsey), Tesla CEO (Elon Musk) and ARK Invest CEO (Cathy Wood) got together on a live conference call to talk about Bitcoin. The crypto space got a boost from the discussion, but that was short-lived. Later, a job posting by Amazon looking for someone to help with crypto led to rumors that the platform would begin accepting crypto. Though that rumor was quickly denied, Bitcoin held on the gains and hasn’t looked back. 40k was a huge resistance level. If it can hold above there, then there could be more upside.

Ethereum (ETH/ETHE)

*Current position* Entry Price: $2030.17 | Profit Target $3500 (43%) | Near-term resistance: $2900 (18%)

When there is positive Bitcoin news, all cryptos rise higher. Ethereum has always been acknowledged for its utility and value.

I’ve always chosen to play Ethereum when I’m bullish on the crypto space. The way I see it, if every crypto goes to 0 tomorrow. I’d rather own an asset with utility that I understand, not just “digital gold.”

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This Month’s Long-term Stock Pick

ROBLOX CORP. ($RBLX) Current Price: $76.98 (source: TdAmeritrade)

Every kid plays this game! And if they don’t, they will.

RBLX uses little or no debt in its capital structure and may have less financial risk than the industry aggregate. RBLX is one of the more profitable companies in the Entertainment industry. Its gross margin is among the strongest of any peer while the operating and net margins are above the industry medians.

Roblox Corp is a technology company. The Company intends to build a human co-experience platform that enables shared experiences among billions of users. The Company offers a platform, which is powered by user-generated content that draws inspiration from gaming, entertainment, social media and even toys. The Company is focused on improving the ways in which the Roblox Platform supports shared experiences, ranging from how these experiences are built by an engaged community of developers to how they are enjoyed and safely accessed by users across the globe. All Roblox Platform users have identities in the form of avatars that allow them to interact and express themselves as whoever or whatever they want to be.

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My Current Long-Term Holdings:

$T, $WKHS, $AGNC, $VLDR, $XRX, $IRM, $WFC, $MO, $ABBV, $XLE, $PFE, $O, $HBI, $INTC, $KO, $IBM $ARKX $COIN $UBER

My Current Cryptocurrency Holdings: $BTC, $ETH, $XLM $COMP $CGLD $FORTH $NU $GRT $DAI $GUSD

My Current Swing Trade Positions: $ETH

Current PAPER trading positions:

My Current Options Trading Positions: AAPL 8/20 $145 P

My Son’s Long-Term Holdings: $DKNG, $EPD, $UBER

My Daughter’s Long-Term Holdings: $ETHE, $AGNC

Market Adventures

Miami, FL, 33169