Weekly Performance Review May 24th – 28th, 2021

Stocks were mixed last week as inflation tension built, and volatility could continue in the week ahead.  But if what we have witnessed as the market has chopped around this month is any indicator, dip buyers are waiting to step into declines and snap up perceived bargains.  

Investors are anticipating key data this week.  Consumer confidence, home price data and new home sales are out on Tuesday.  Durable goods will be released Thursday and the consumer sentiment report is issued Friday.  

But the most important announcement will be the personal income and spending data, which includes the personal consumption expenditure price deflator, the Fed’s preferred inflation measure. 

With present conditions in mind, our team has hand selected these tickers to watch next week as earnings wind down and tension could wind up.  

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 32. 

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. 

On Friday, May 14th we issued a trade alert to buy NTES stock.  Since then, the share price has gained nearly 11%.  In our opinion, NTES continues to stand out among its peers and we maintain our buy recommendation. 

QTS Realty Trust (QTS) is a leading provider of data center solutions across a diverse footprint spanning more than 7 million square feet of QTS Mega Data Centers throughout North America and Europe.  In addition to hosting corporate data facilities, it lets enterprises connect to “the cloud,” and it allows various cloud systems to connect to one another.  

It’s organized as a real estate investment trust (REIT), which exempts it from federal taxes in exchange for distributing at least 90% of its earnings to shareholders in the form of dividends. 

The 2010s were good to data-center REITs.  QTS, which went public in October 2013, has shot ahead by 180% since then — better than the S&P 500’s 109%, and the 28% performance of the Vanguard Real Estate ETF (VNQ).  Plus, its dividend is still north of 3%.

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QTS is one of the smaller players in its space, with a market cap of $4.32 billion, but remains acquisitive.  The company picked up two data centers in the Netherlands in 2019, expanding its geographic footprint.

Fifteen analysts have sounded off on QTS within the past twelve months.  There are currently 4 Hold ratings, 10 Buy ratings, 2 Strong Buy ratings and no sell ratings for QTS.  The consensus among Wall Street equities research analysts is that investors should buy QTS Realty Trust Stock.

Analysts average target price of $75.5 gives the stock implied upside of about 16% in the next year or so.  That doesn’t include its income potential, however.  While most of the best small-cap stocks to buy now are pure growth plays, QTS pays dividends; its 3.0% yield is more than double the rate on the S&P 500.

Most of us engage with Twilio (TWLO) technology on a regular basis without realizing it.  If you’ve used a third party app to change your password, order dinner or make a reservation, you were likely dealing seamlessly with Twilio.  As the leader of in-app communication solutions, Twilio plays a pivotal role in some of the apps we use the most.

Although the company’s numbers exceeded analyst expectations when it reported earnings last month, but weak second quarter guidance sent some investors running.  Consequently, the stock lost more than 10% following the May 5th earnings call which left the share price more than 30% lower than February highs.   

It should be hard for long-term-minded investors to see this as anything less than an opportunistic bargain, as quarter-to-quarter fluctuations aren’t usually a huge concern for those with their sights far on the distant horizon.  Especially when considering Twilio, who routinely provides conservative guidance and surpasses its own forecasts, as well analyst estimates.  As is evident in their Q1 earnings beat — revenue rose 62% for the period, far more than the 44% – 47% target.  

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Twilio’s products will only become increasingly popular as we rely on our smartphone apps more and more.  It’s customer base is expanding healthily and customers are increasing what they spend.  The company posted a full-year 2020 net expansion rate of 137% , which means its 235,000 active customers spent 37% more money on its services.  

The pros on Wall Street also look favorably on TWLO.  Of 27 analysts offering recommendations for the stock, 24 call it a Buy, and 3 say Hold.  There are no Sell ratings.  The average price target of $468.91 would mean a sizable gain from its current price, which is around $314.