The World Is Finally Catching up With Sjug
One of Steve Sjuggerud's highest-conviction ideas continues to play out... The obvious winners in the 'New China' economy... The world is finally catching up with Sjug... An urgent 'Melt Up' warning...
One of Steve Sjuggerud's highest-conviction ideas continues to play out...
Regular Digest readers know Steve is incredibly bullish on Chinese stocks. But you may not realize his thesis pulls together four different trends happening simultaneously in China right now.
One of the biggest trends is what Steve has called "New China," a dramatic technological revolution being led by a handful of companies operating businesses similar to U.S. tech giants.
This trend has already transformed parts of the Chinese economy in ways most Americans wouldn't believe. As Steve explained to his True Wealth China Opportunities subscribers following his latest research trip last September...
"Get the WeChat app, Steve," China fund manager Brendan Ahern told me as we hit the ground running in Beijing.
"Why?" I asked. "I don't need another messaging app."
"Because you can't do business in China without it," he said.
I didn't believe him at first... How could a simple app be THAT important?
I found out Brendan was exactly right...
"I don't carry a wallet or purse," an executive told me during our first meeting in Beijing. This executive saw that I was a bit confused. So she smiled, held up her mobile phone, and said something shocking: "I do everything through WeChat or AliPay."
It turns out, she's not alone. Most people in major Chinese cities do exactly the same thing... They don't carry cash or credit cards, and they don't use their cellphone number as their primary means of communication. Instead, they use WeChat, which is like having Facebook, PayPal, your phone, and text messaging all in one app.
WeChat has more than 700 million active users. That's more than twice the number of people that live in America.
As Steve explained, the only thing more impressive than the magnitude of these changes is how quickly they occurred. More from the report...
"Did you use WeChat or AliPay two or three years ago?" I asked her.
"No. Nobody did, really."
Think about what that means... In the last two years, paper money in China has been replaced almost completely... by something that nobody really used just two or three years ago.
The Chinese actually invented paper money. They were the first to use it – more than 500 years before the Europeans. But they found something they like so much better today that the use of paper money is now done (for the most part) in China's major cities.
What the heck is going on? It's nothing short of a technological revolution... It might be the greatest technological revolution that I have seen in my career. It is certainly happening faster and on a larger scale than anything I have ever seen.
The obvious winners in the 'New China' economy...
Incredibly, the biggest winners in this revolution were already clear. There was no guessing required. But despite their dramatic growth, Steve noted that investors still weren't paying attention...
You can buy the companies that are leading this charge – companies that have grown their sales tenfold over the last five years – at 2013 prices...
It may be one of the greatest speculating opportunities of your lifetime.
Put some of your money in this idea... and some money for your kids... and for your grandkids... This story is that big.
Of course, as you might've guessed by now, two of the biggest "New China" leaders are Tencent (TCEHY) – the owner of WeChat – and Alibaba (BABA) – the owner of AliPay. But as Steve explained, they're much more than mobile-payment companies...
Tencent is "sticky," as the tech gurus say. Users can't stop using its products.
In addition to owning WeChat, Tencent is also the leader in mobile gaming in China. It's actually not just China's mobile-gaming leader, it is the world's leader based on gaming revenues. It's ahead of mobile-gaming giants like King, Electronic Arts, Zynga, and the rest. And its market share is increasing, fast.
Whether you're hailing a taxi, paying your bills, chatting with friends, or playing games online, you never have to leave Tencent's world.
Tencent's sales were 1 billion yuan in 2005. In 2015, they were more than 100 billion yuan. (Yes, that's 1 billion to 100 billion. For reference, right now China's exchange rate is about 6.7 yuan to the U.S. dollar.)
Even since 2010, sales growth has been extraordinary. Sales increased from around 20 billion yuan in 2010 to 103 billion yuan in 2015.
To use a very simple analogy, if Tencent is like the "Facebook of China," you might call Alibaba the "Amazon of China." And Steve noted it was growing even faster...
Alibaba has had a roughly tenfold increase in revenues – in just five years.
Alibaba is now the world's largest retailer... With nearly $500 billion in "gross merchandise volume" sold in the last 12 months, it just passed Wal-Mart to take the crown.
The crazy part is, Alibaba doesn't have any stores like Wal-Mart does. Alibaba is an online business, like Amazon. Alibaba has a near monopoly on online retail in China – with 80%-plus of the country's online-retail sales on its site. (Think about that!)
Despite this extraordinary growth, Steve said there was still a massive amount of upside ahead...
He noted that hundreds of millions of Chinese consumers have yet to get "on board" this trend... and there's still plenty of growth potential among existing users as well. He noted that analysts expected both companies to grow revenues 150%-plus by 2019.
As it turns out, he may not have been optimistic enough...
Steve has been exactly right so far, as these companies' recent earnings reports point out...
Tencent reported second-quarter results last Wednesday. And it trounced analysts' already lofty expectations across the board...
Both revenue and profit jumped to new all-time highs. Revenue grew 59% year-over-year to 56.6 billion yuan, while profits rose 70% to 18.23 billion yuan. Meanwhile, the monthly active users of its popular WeChat app jumped to a new record of 963 million.
On Thursday, Alibaba joined the party... It said revenue grew 56% to 50.1 billion yuan in the quarter. And net income rose a whopping 96% – nearly doubling – to 14 billion yuan.
And now, finally, the world is taking notice. As the New York Times reported that same day...
The technology world's $400 billion-and-up club — long a group of exclusively American names like Apple, Google, Facebook, Microsoft and Amazon — needs to make room for two Chinese members.
The Alibaba Group and Tencent Holdings, Chinese companies that dominate their home market, have rocketed this year to become global investor darlings. They are now among the world's most highly valued public companies, each of them twice as valuable as tech stalwarts such as Intel, Cisco and IBM.
While American technology giants dominate people's online lives in Western countries, Tencent and Alibaba have soared by essentially carving up China, the world's single-largest internet market with more than 700 million online users. That is roughly twice the size of the population of the United States. Chinese people also spend more money online than Americans...
Their rise is emblematic of a rebalancing of global technological influence. In recent years, places from Paris to Seoul have claimed the mantle of the next Silicon Valley. Yet the cluster of fast-growing start-ups and internet behemoths coming out of China has emerged as the one true rival in scale, value and technology to the West Coast homes of the American technology renaissance.
True Wealth China Opportunities subscribers who took Steve's advice are doing well... Those who bought his favorite one-click "New China" recommendation are up more than 40%, while folks who bought Tencent and Alibaba directly were up 57% and 65% as of last night.
But Steve believes there's more upside ahead... Again, despite this massive growth, there are still hundreds of millions of potential new customers in China alone. He believes this trend could continue for years.
And he's apparently not alone... We note that several of the world's most successful hedge-fund managers recently turned bullish on Alibaba. According to the latest regulatory filings, both David Tepper of Appaloosa Management and Dan Loeb of Third Point opened massive new positions in the second quarter. Legendary investors Stanley Druckenmiller and Julian Robertson also bought shares for the first time.
'This is the time most people make devastating mistakes'...
Of course, Steve's bullish China call isn't his only bold prediction of late...
While more and more analysts are calling for a major top in U.S. stocks, Steve remains bullish. He believes we're in the early stages of a "Melt Up" that will push stocks to incredible new highs before the bull market finally ends. And he believes folks who are courageous enough to act could easily double their portfolios or better over the next 12 months.
But make no mistake... Steve does NOT think this is a time to speculate wildly or take big risks. If you want to profit from the Melt Up, you must be smart. You need to know what to buy, when to sell, and how to control your emotions along the way.
That's why he's hosting a special event tomorrow night to introduce his "Melt Up Millionaire" project. This project will show you everything you need to know to make a fortune during the Melt Up... and to get out safely before the inevitable meltdown begins.
No one has "called" this eight-year bull market in stocks better than Steve. Whether you lean bullish or bearish today, you owe it to yourself to learn more. You can reserve your spot for FREE right here.
New 52-week highs (as of 8/22/17): Alibaba (BABA), short position in Brinker International (EAT), First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS), National Beverage (FIZZ), iPath Bloomberg Copper Subindex Total Return Fund (JJC), and Procter and Gamble (PG).
The Porter vs. Sjug "debate" continues. Where do you stand? Let us know at feedback@stansberryresearch.com.
"This situation reminded me of a quote from F. Scott Fitzgerald. This is from memory so I may not have it exactly word for word but here goes: 'The test of true intelligence is to be able to hold two opposing ideas in your mind at the same time and still retain the ability to function.'" – Paid-up subscriber Ken I.
"I think I lucked into the best of both worlds. I am following some of Steve's recommendations as well as several puts from Porter's Dirty Thirty. I have to confess, options are to my brain what a backlash is to a bait casting reel. I am learning though. I wait and watch the spreads fluctuate and try to follow along the best I can. I was able to get good prices in the puts I chose. Oh, I also bought a call. I think it's entirely possibly that you will both be right and timing Steve's exit will be the thing we need to focus on. Thanks for the continuing education." – Paid-up subscriber Carolyn G.
"I find Porter is often early, if ultimately right on. So I'm following Sjug (carefully), but steadily growing my hedges a la Porter, and have tightened my stops on most positions. I am fully invested, with a small position in high growth small stocks (10x prospects) and a good-sized position in China and some other non-US ETFs, in addition to the Stansberry mainstream picks... " – Paid-up subscriber Al H.
"Hello, I'm definitely in your camp Porter, though Sjug is a brilliant guy and he's been spot on the last near decade.
"After wiping out most of my life's savings diving head first into real estate after the last crash and not really educating myself or knowing what I was doing, I've learned the hard way that managing risk and preserving capital is the best way to create lasting wealth (not that I have any yet).
"I just can't trust markets anymore. There is too much interference in price signals, too much manipulation of data points, too much dishonesty in the markets to know what to do. I guess the real question is how long can governments and central banks postpone the inevitable?
"My plan is to hold some gold and build what little cash I can and wait... I appreciate the education. Your team is great!" – Paid-up subscriber Andy L.
"I've been an Alliance member for more years than I'd like to admit. As a member of the financial industry, it took me some time to come to grips with how poorly investment professionals are taught to handle people's money. It also took me quite a while to disconnect and 'unlearn' how I was taught to help people invest vs. what you guys preach on what seems to be a daily basis.
"You've given each and every reader the ability to LEARN how to take advantage of both your theses: How to take advantage of Sjug's call?! Simply stated, invest in good, high-quality names in the spaces that will more than likely prosper over the next 10 years – those involved in the 'eco-system,' China, etc. all while utilizing capital preservation strategies, trailing stops and proper position sizes. Porter's call has given us the tools to learn how to be hedged and have a handful of short positions (again, while utilizing capital preservation strategies and proper position sizing)... You've given us the tools to understand pair trades like the one referenced in today's Digest, long one such as SHOP – short the disappearing business model, MANH... you've provided us the tools to purchase 'term financial life insurance' with volatility near all-time lows – like the strategies in your Big Trade.
"You've suggested physical gold and cash if banks close and all financial markets and credit dries up. Given a proper portfolio – Invested long in Sjug and Porter's names, Short a percentage of assets, long a portion of cash and gold as well as having a small portion of out of the money puts gives us the tools to outperform major market benchmark indices, while we should profit enough to make up for losses absorbed before our trailing stops are triggered should things go to hell in Porter's thesis...
"For those who write in and complain, they are simply not paying attention to your comprehensive work. I can't think of a service or firm that exists today that provides all of the education, tools and guidance which allows its readers to benefit more than Stansberry Research – and I read most of what's out there (or shall I say used to read as I got tired of the biased reports and found you to be much more honest and on target).
"If someone complains that you're playing both sides of the fence, they don't understand that NO ONE knows with 100% certainty, which way markets are going – and if someone says they do – they're lying to you... Which is why having the tools and education you provide is literally worth its weight in gold. Thank you all for what you are building... Porter – thank you for telling us what you would want to hear if the roles were reversed." – Paid-up Stansberry Alliance member Mitchel
Regards,
Justin Brill
Baltimore, Maryland
August 22, 2017