New Trade for May 14th, 2021

Stocks edged higher this morning in early trading.  It’s been a tough week for investors, but gains today would cut into sizable weekly losses for the major averages.  So far this week the S&P 500 is down 2.75%, the Dow has lost 2.21% and the Nasdaq has dropped 4.1%.  

Spiking volatility can be unnerving for some investors, but volatility can also be your friend. Sharp sell-offs — including the one we experienced this week and the more pronounced COVID-19-fueled markdown in March of last year — can also create opportunities to buy new stocks or add to existing positions.  Today’s trade alert highlights one such opportunity, read on to learn more.  

NetEase Inc (NTES) develops and operates mobile and PC games, communities, and eCommerce platforms.  Its titles include some of the most popular games in China such as the Westward Journey series, Ghost, and partnering with Activision Blizzard (ATVI) to deliver Chinese-versions of Blizzard games to its users. 

NTES became a public company in 2000.  Since then, the video game industry has gone from a $20 billion industry to be worth nearly $200 billion.  NTES has ridden this wave to become one of the most valuable video game companies in the world.  It’s looking to maintain its standing as one of the leading gaming companies in China with new products including a VR-based, open-world, role-playing game that is highly anticipated by the gaming community.

Over the last ten years, NTES’s revenue has gone from $780 million to $11.2 billion.  Next year, earnings are expected to grow by 60% and revenues by 27%.  Due to this, NTES has a reasonable forward PE of 36. 

NTES’s leading position in the video game market is expected to grow at a double-digit CAGR over the next decade.  NTES also has shown the ability to develop and launch new games that are well-received by the public and partner with foreign developers to bring popular games to the Chinese market. 

The current consensus among 42 polled analysts is to buy NTES.  There are 36 Buy ratings, 3 Hold ratings and only 3 Sell ratings for the stock.  A median price target of $136 represents a more than 33% upside.

NetEase is scheduled to report earnings on Tuesday, May 18th.  Recent positive estimate revisions are a good indication that analysts anticipate an earnings beat.  Considering that the stock is down nearly 8% so far this week and is down more than 23% from its February peak, the opportunity seems attractive.  

Where to invest $1,000 right now...

Before you consider buying NetEase, you'll want to see this.

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And it's not NetEase.

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