If you haven't already noticed by now, the world has been subject to a market pullback, thanks in large part to some micro/macro events that have taken place throughout the world. In just the last week, news of China's exports falling in February, added fears that the world's second-largest economy was in the midst of a great slowdown.
Things didn't fare any better in Russia, as reports surfaced that Russia's military forces have been conducting new military operations near the Ukrainian border. These events have led to quite the sell-off in Chinese and Russian related stocks.
One stock in particular that took quite the hit was NQ Mobile (NYSE:NQ). For those of you that are not familiar with NQ Mobile, the company is a leading provider of mobile Internet services throughout the world. The company is headquartered in China as well as the United States.
While these events haven't helped stocks across the board, I believe the sell-off in NQ Mobile is overdone and presents investors a great opportunity to pick up shares on the cheap. At the time of writing this, shares have slid around 15% in just the last week. So has anything changed to warrant such a sell-off? I don't believe so and will explain why investors should consider buying the NQ Mobile dip.
With the earnings season winding down, some investors have been spooked by the lack of an earnings announcement made by the company. If you don't believe me, just take a look at what some investors have said over the last couple of days on StockTwits.
As each day passes without an earnings announcement, shares continue to slide before recovering a bit at the end of the day in anticipation that news will be released pre-or-post market. When news does not come, shares continue the downward cycle. So why am I telling you to buy during this downward cycle? Here are a couple of reasons why:
1) "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" - Warren Buffett
Those who have done this with NQ Mobile have made some massive gains over the last few months and years. After the Muddy Waters fiasco last October, those investors who did their homework would have doubled if not of tripled their returns using Buffett's strategy.
2) Don't be fooled, earnings are just around the corner. If you don't believe me, then just ask management yourself or read the release they put out this week.
"We have not yet announced the exact date for our Q4 and year-end 2013 earnings report. We recognize that this has led to many rumors and concerns which we want to address again today. As we have previously said, we will be announcing the date of our earnings report soon.
Since late October, we have reported a record Q3, we held an investor meeting where we provided 2014 revenue guidance that exceeded expectations, and we have announced numerous new deals and partnerships with major partners including Sprint, Samsung, Ingram Micro, China Mobile, Ubisoft, Telkomsel, and others.
When we report our Q4 and year-end 2013 results, we look forward to continuing the discussion and focus on our business and fundamentals with all of you.
Thanks for your understanding."
3) Another thing that I would like to point out is what happened during the last earnings report. NQ Mobile released their earnings on time! For some reason many people quickly forgot about that and focused on other topics at that time.
Those that saw what was happening quickly jumped on the opportunity. Jim Oberweis, manager of Oberweis Asset Management doubled his stake in the company as did many other institutions and portfolio managers. Here is one of the reasons why.
"It says something that they released their earnings on time. I don't think Pricewaterhouse "PwC" (NQ's auditor) would let them if they had significant concerns." - Jim Oberweis
4) For those investors that are still worried about NQ Mobile pushing back its earnings date, think about this for a moment. Is NQ Mobile the only Chinese company that pushed back its earnings report this year? Not a chance!
I'm not sure how big of an impact the Chinese New Year had on the timing of everything this year, but many Chinese companies pushed back their earning dates. The table below gives you a great example of this.
|Baidu (NASDAQ:BIDU)||February 4||February 26||+ 22 Days|
|Skymobi (NASDAQ:MOBI)||February 4||February 24||+ 20 Days|
|Ctrip (NASDAQ:CTRP)||January 31||February 12||+ 13 Days|
|Vipshop (NYSE:VIPS)||February 21||March 3||+ 10 Days|
|Renren (NYSE:RENN)||March 11||March 18||+ 7 Days|
|Sohu (NASDAQ:SOHU)||February 4||February 10||+ 6 Days|
|NetEase (NASDAQ:NTES)||February 6||February 12||+ 6 Days|
|Sina (NASDAQ:SINA)||February 19||February 25||+ 6 Days|
|TOTAL =||+ 11.25 Days|
Those delays this year haven't stopped companies like Baidu and Vipshop from climbing to new highs after posting record earnings results. In fact, many Chinese companies have easily beaten analyst expectations this quarter and I expect the trend to continue for the remaining companies who report this month.
5) So what do analysts think about the "delay" with regards to the audit and earnings reports? Analyst Frederick Ziegel, of Topeka Capital had this to say on the matter:
"It is our sense NQ is trying to put the independent investigation to bed (favorably in our opinion), so investors can then turn their undivided attention to 4Q13 earnings. We are expecting the process to unfold over the next few weeks."
Ziegel, affirms his Buy rating on NQ Mobile with a price target of $36.75. This represents upside of more than 100% from Friday's closing price of $18.28. Now what investor isn't looking for a return like that?
Michael Walkley, an analyst at Canaccord Genuity, also has some nice things to say about NQ Mobile in his March note. Walkley anticipates the results of NQ's voluntary independent investigation into the short-seller report could be announced concurrent with or shortly after NQ's Q4/13 results in mid-March. Walkley also affirmed his Buy rating on NQ Mobile with a price target of $29, representing upside of 60% from Friday's closing price.
As I've outlined in this article, there are many reason why investors should not freak out about the lack of an earnings announcement or the release of NQ's audit report.
Baidu delayed their earnings by 22 days this year and look how wonderful things turned out for them (shares hitting record highs). If NQ Mobile were to do the same, they would have until March 28, to report their earnings. That is still 2 weeks away!
In less than a week and a half, NQ Mobile will be closing in on its five month anniversary mark since the Muddy Waters attacks began last October. Does anyone else find it interesting that nobody has resigned, quit, or broke off relationships with the company? Instead, quite the opposite has happened. Here is what has transpired in just the last couple of months:
- Nobody has resigned or quit from NQ Mobile or its special investigation committee. NQ's Big Four auditors, PwC and Deloitte and Touche are still representing the company and have put their reputations on the line.
- NQ Mobile just recently achieved a record for most institutional support (74%), since the company went public in 2011.
- NQ Mobile just recently presented at Morgan Stanley's annual technology conference, one of the largest technology conferences in the world. This is the same company that took a sizable position in NQ Mobile recently. Does anybody else see what is going on here?
- To date, every single one of NQ Mobile's partners has stuck by the company. Not only that, but some of the largest companies in the world [China Mobile (NYSE:CHL), Telkomsel, America Movil (NASDAQ:AMOV), Tencent (OTCPK:TCEHY), Samsung (OTC:SSNLF), Sprint (NYSE:S), Ingram Micro (NYSE:IM), Target (NYSE:TGT), etc.), have reaffirmed their partnerships with the company. Some of them even signed deals with the company recently. Clearly these companies care about their reputations, image and brand, yet they still do business with NQ Mobile. As my parents taught me at a very young age, "actions speak louder than words" and those actions have certainly benefited NQ Mobile going forward.
As Toro Investment Partners pointed out in their latest SA Article, with 74% of the float locked up by institutions, NQ Mobile has quickly become one of the most dangerous stocks to short on the market. With all that has gone on, I wouldn't want to be short, or better yet, standing on the sidelines as this freight train leaves the station.
As always, I'm providing you with my track record (just updated) and other particular stocks that I recommend. The link provided will show you all of my picks, how they have fared, and where I think they will be going in the near future. I think you will find my track record to be very impressive as well as useful.
Disclaimer: Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.
Disclosure: I am long NQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.