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Summary

  • As evidenced by the latest retail numbers, the U.S. consumer is spending selectively.
  • The Fed-driven economic expansion has been good for investors, but other factors appear to be weighing on consumer optimism.
  • So I am looking for better opportunities overseas like the Chinese online travel company Ctrip.

As clearly evidenced by the recent underperformance of many retail stocks, retail is not a great place to be right now. Macy's (NYSE:M) missed earnings this quarter as aggressive promotions took their toll on margins, causing the department store retailer to cut guidance. The company over-ordered inventory, expecting a big Q2 rebound in sales from Q1, but that never materialized.

If you listen to the economists, Macy's shouldn't be having these troubles. But according to Macy's CEO, Terry Lundgren, customers are still not feeling comfortable about spending more in an uncertain economic environment. And Macy's isn't the only one experiencing weak sales. Even non-brick and mortar retailer Amazon (NASDAQ:AMZN) continues to lose money. U.S. Retail sales in July were flat, posting the weakest reading since January.

I am avoiding the U.S. consumer stocks. Even the restaurant group is weak, with McDonald's (NYSE:MCD) trading down for the year. The consumer is not exactly fat, happy, and healthy right now. The Fed-driven economic expansion may have been good for investors over the last few years, but now, the Fed is done.

So I am looking for better opportunities overseas. China and India have been severe underperformers the last few years relative to the U.S. markets. While the U.S. has been averaging 14%-15% over the last 5 years, those markets were up only 1%-3%. Now China and India seem almost immune from geopolitical tensions in Russia, Iraq, and Gaza, and are doing quite well.

One of the areas of the market I really like right now is China. One of the stocks I currently own is a Chinese online travel booking website called Ctrip.com (NASDAQ:CTRP). Ctrip offers hotel reservations, airline tickets and packaged tours to business and leisure travelers in China. Ctrip primarily targets individual travelers, as opposed to those traveling in groups. The company was founded in 1999, is based in Shanghai, and listed on the Nasdaq in 2003.

(Data from Best Stocks Now app)

Ctrip.com is a $9 billion market cap company. It was an $8 stock back in 2008, and it's now a $67 stock. But I am not the only one that likes the stock right now. Priceline (NASDAQ:PCLN) likes the stock as well. Priceline recently took a 10% ownership stake in Ctrip, receiving a $500 million investment on August 6th. Priceline apparently likes the growth opportunities in China too.

(Data from Best Stocks Now app)

Ctrip is not an inexpensive stock, but at the same time, the growth rate on the company is 22%. I have a target price of $118.

(Data from Best Stocks Now app)

Over the last 10 years, Ctrip has delivered returns of 33.4%, versus only 6.2% for the S&P 500. It has also outperformed considerably over the last 5 years, up 21.1% versus 14.0%. It receives a performance grade of A-. Until recently, China has really underperformed, but even during that time, on a 3-year basis, Ctrip managed to keep pace with the U.S. market.

But now, China has grabbed the baton, and is starting to lead the pack once again. Over the last 12 months, China is ahead of the U.S. market. And Ctrip is up more than 48% over the last 12 months. This earns it a Momentum grade of A+.

(Data from Best Stocks Now app)

Ctrip may be a consumer stock, but in China, the consumer appears to be on the rebound. Chinese consumer confidence grew for the second month in a row in July, and July retail sales increased 12.2% over last year.

I love China right now, and I feel good about the fact that a great company like Priceline agrees!

For a change of opinion on this stock, follow me on Twitter @billgunderson

Source: Why Is Priceline Investing In This Stock?