Ericsson out
This has been a very interesting holding over the last six months, with my analysis and buying strategy for once working very well. I did my initial analysis (Value Hunting – Ericsson) of the company in September. The stock was then trading in the 60 SEK range and I concluded that I was wary about the negative trend since 2014. I also did a skew analysis, concluding that the stock has in the past had a history of serious negative surprises. Little did I know how timely my analysis would be when the next quarterly report was out and the stock trading down -20% on the day. I had decided to take a position sub 50 SEK and that opportunity already materialized. I took a 2% position with the plan to add further if the stock moved towards the low 40 SEK range. And so it did, the stock continued to trade down. Averaging down is in general very painful for me, it helped me a lot to have committed to this already here on the blog. So at around 43 SEK I doubled up. Again I was lucky in the sense that this was more or less the absolute bottom.
A few months later the market has started to recognize the potential for a Cisco bid. This was one of my main arguments for buying and especially adding in the stock at 43 SEK. The stock has now traded up nicely, and is now trading again in the 60 SEK range. Given that I don’t think the company outlook has changed much, the risk-reward is more or less back to where when I did my initial analysis. The medium term trend stock chart now looks better and missing out on a potential Cisco bid would obviously be very hurtful. But the stock is no bargain anymore and I choose to exit my full position on today’s close.
Thoughts on China
Currently on a business trip to Shanghai and again fascinated about how quickly things change in this city. This time the new normal is to only use Alipay and Wechat pay. We went down to the food court and my colleague had to buy the food for me because the small food stalls do not accept cash or Mastercard/Amex/Visa. You can basically only pay through your smartphone with Alipay, Wechat pay (it was also possible to use Unionpay, although nobody used it). Last time I was here cash was still accepted, it has gone so fast, Shanghai city center is going cashless! My colleagues are telling me a bit jokingly that it’s no big worry to loose your wallet, but if you loose your smartphone you are in trouble (to be able to pay). Taxis are the same thing. When I visited the city 3 years ago, finding a taxi was super easy, you could pick one up anywhere on the street. Today you could be standing next to the road for 1 hour, looking like a moron waving after taxis which are all already taken. Everyone books their taxis through their smartphone, and then obviously pays through the phone. Not armed with a smartphone loaded with all the latest Chinese services makes you lost in this ever changing city.
So if what has happened in central Shanghai is a guiding light for the country maybe China as a whole is more or less cashless in 10 years and 1.3 billion people pay their daily spending through Alipay or Wechat pay. Without taking into account the hundreds of other initiatives Alibaba and Tencent have, I could almost be willing to long these companies on only this single observation. Although just looking a tiny bit deeper, shows that Ant Financial which owns Alipay is only 33% owned by Alibaba and the market is still waiting for Ant Financial to do its anticipated IPO. Maybe the valuations already reflects this glorious future both for Alibaba/Alipay and Tencent/Wechat pay. Some reader views on this would be very welcome.
For my sport-shoe hunting, a bit disappointing to realize I won’t have time to try out any Xtep shoes, why? Because the do not have any stores in central Shanghai. They are all further out, and even often far away from subway stations. So I learned something, the tier 1 big city Chinese are already too rich to be the main potential customer group for these type of local brands, it’s all Adidas and Nike here, maybe that says something about the long-long term potential of these brands, if they do not manage to change their brand image..
