Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

Summary

  • I sold Vipshop from my growth portfolio because it has run up 473% in the last year and I felt it was time to lock up some profits.
  • I decided to put the proceeds into Royal Caribbean because it is a growth stock with value and a dividend.
  • I bought into Royal Caribbean right before earnings and it turned out to be a blessing in disguise.

I recently sold Vipshop Holdings Ltd - ADR (NYSE:VIPS) from my growth portfolio because I felt I had a pretty good gain in the stock, wanted to lock in some profits, and it fell out of my growth portfolio screening criteria for the services sector. After locking in some profits I decided I wanted to add a bit of a dividend to the portfolio so I added shares of Royal Caribbean Cruises Ltd. (NYSE:RCL) to the portfolio. Royal Caribbean operates in the cruise vacation industry. It owns five cruise brands, Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisieres de France. On July 24, 2014, Royal Caribbean reported second quarter earnings of $0.66 per share, which beat the consensus of analysts' estimates by $0.14. In the past year, the company's stock is up 73.48% excluding dividends (up 75.64% including dividends) and is beating the S&P 500 (NYSPY), which has gained 16.91% in the same time frame. I initiated my position in Royal on July 22, 2014.

I sold my shares in Vipshop because it actually dropped out of my growth portfolio screening criteria for the services sector. Vipshop through its subsidiaries operates an online platform that offers products to consumers in the People's Republic of China through flash sales on its vipshop.com and vip.com website. On May 14, 2014, the company reported first quarter earnings of $0.63 per share, which beat the consensus of analysts' estimates by $0.17. In the past year, the company's stock is up 473.74% and is beating the S&P 500, which has gained 16.91% in the same time frame. With all this in mind, I'd like to take a moment to evaluate both stocks on a fundamental, financial, and technical basis to show why I swapped out of one for the other.

Vipshop Holdings Ltd - ADR

The company currently trades at a trailing 12-month P/E ratio of 172.17, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 44.84 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.45), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 70.22%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 70.22%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity, and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 6.5%, 31.6%, and 10.9%, respectively, which are all respectable values. In this particular instance, I skipped the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio, a stock does not have to have a dividend.

The really high return on equity value (31.6%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry [for comparison purposes, Vipshop has the third-highest ROE of all companies in the Catalog & Mail Order Houses industry, behind Overstock.com Inc. (NASDAQ:OSTK) which sports an ROE of 99.6%, and behind Mercadolibre, Inc. (NASDAQ:MELI) which sports an ROE of 44.5%].

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in overbought territory with a current value of 70.18. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars flattening in height, indicating the bullish momentum may be getting tired. As for the stock price itself ($213.49), I'm looking at $215 to act as resistance and $199.08 to act as support, for a risk/reward ratio which plays out to be -6.75% to 0.71%.

Royal Caribbean Cruises Ltd.

The company currently trades at a trailing 12-month P/E ratio of 32.84, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.69 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.29 per share and I'd consider the stock inexpensive until about $64. The 1-year PEG ratio (1.24), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 26.56%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 26.56%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 21.53%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.59% with a payout ratio of 52% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.5%, 5.8% and 4.7%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.59% yield of this company alone is good enough for me to take shelter in for the time being.

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock is in overbought territory, with a current value of 76.98. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($63.06), I'm looking at $65.00 to act as resistance and $59.62 to act as support, for a risk/reward ratio which plays out to be -5.46% to 3.08%.

Wrap Up

I sold Vipshop for a 17.52% gain or 210.49% on an annualized basis. Again, I only sold Vipshop because it dropped out of my screening criteria for growth stocks in the services sector. Vipshop is a very excellent company with great near-term earnings growth expectations but it has just zoomed up in the past year. Not to mention, I believe the stock to be fundamentally expensive on 2015 earnings estimates and earnings growth expectations. The company does have a great return on equity, but I also don't like the current risk/reward ratio.

Royal Caribbean on the other hand is not only a growth stock, but it is also a value stock which pays a dividend. The cruise industry has been on fire this past year and Royal Caribbean is not only the cheapest of the bunch, but it is destroying the competition as shown in the chart below.

(click to enlarge)I was pretty fortunate that I purchased my shares in the stock this week before earnings were announced. Just in four days of ownership I am already up 12.17% on Royal Caribbean while Vipshop is up 4.54%. I honestly had the fullest intention to hold Royal Caribbean for some time, but with this immediate gain I'm very tempted to lock in the profits I've made thus far. I just need to find a new name to put the capital. I feel the market is a bit toppy right now and am struggling to find something so if you have any suggestions I'd appreciate it.

(click to enlarge)

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Royal Caribbean Is Helping My Growth Portfolio Cruise Higher