If you might recall, I recently wrote in Seeking Alpha that I only own a few stocks traded in the US. Ctrip (NASDAQ:CTRP), China Mobile (NYSE:CHL) and Focus Media (NASDAQ:FMCN) made up my holdings because I am not a big believer in over diversification. I believe in finding a couple of good companies and holding or selling as needed but not stressing out with ups and downs.
Well, my portfolio has changed since I last wrote. I sold out my last shares of Ctrip last week, around when it hit its 52-week high, and have my remaining stock holdings in Focus and China Mobile. Rather than buy other stocks, I have kept my remaining holdings in Australian dollars, though I think the Greenback might bounce back a little in the coming weeks.
Here are my thoughts on the 3 stocks I wrote about before.
I have obviously been a huge fan of Ctrip for many years. It still is one of my favorite companies here and long-term it is a great bet. So why did I sell my the last of my shares last week?
Unlike most commentators on Seeking Alpha and other places, I actually think the Olympics will hurt Ctrip’s numbers rather than help them, and most companies will not benefit from the Olympics, as people think. Take a look at a commentary I wrote for Forbes recently entitled “Beijing Olympic Sponsorships a Waste”, which should give you an idea on my thoughts on the coming Olympics and how it is not turning out to be so lucrative for many companies.
Anyway, back to Ctrip specifically.
(a) First off, people coming to China for the Olympics from other countries will most likely have booked their entire trips in their home countries with their travel agent rather than arrive in China and use Ctrip at the last minute. Can you imagine a 70-year old coming from Topeka to China for the first time and not having every hotel and plane booking made in advance? Not going to happen, so I think it is not realistic to say Ctrip itself will benefit from the influx of foreigners – its core target market still remains Chinese businesses and middle class Chinese. Marriott (NYSE:MAR) or Starwood (HOT) will benefit perhaps from sky-high room costs during the time period but not Ctrip.
(b) Chinese themselves are going to stay at home during the Olympics to watch the Games. They are not going to be traveling all over the country and miss out on the event. And I have to tell you, Olympic tickets themselves are pretty darn hard to come by. I actually do not know many mainland Chinese who live in China who are going to Beijing for the Games. While there is certainly pride, they will watch the Games on TV and root for China elsewhere. So I guess there will be a lot fewer Chinese traveling around China for a several week period and that might hit Ctrip’s Q3 numbers.
(c) And very importantly, after the hubbub during the Olympic torch relay, the government has cracked down on visas big-time to China. They have limited the number of entries for businessmen, making tourist visas harder to come by. What this means is that considerably fewer cross-border meetings will take place in the next few months, which means fewer flights and hotel bookings from the Chinese side via Ctrip to meet with foreign counterparts. People just do not want to go through the hassle of the visa office. I hope that the visa restrictions will ease up after the Olympics for business sake.
Anyway, I am still a huge believer in Ctrip. I just wanted to get out of it because I think next week it will be volatile after the earnings announcement. I could be totally wrong or right, but I want to take some money off the table since it has had such a great run. Either way, I will certainly buy back into Ctrip because in the long-term this is a place to park money. I will just wait for a dip and a slightly less volatile time.
If you are an investor in Focus, you are probably pretty ticked off about the whole SMS fiasco, as I am. I remember asking Jason about the risks a few months ago when he and I sat on a panel together, and he did not seem to think there would be a problem. I guess he was wrong, although I do think that the Street hammered Focus a little too much given the fact that the SMS division was such a small part of overall revenue.
On the good side for me, personally, I have been getting a lot less spam SMS everyday... Though these idiots from Taiping Yang Insurance (China Pacific Insurance) have been calling my mobile phone 3-4 times a day to hawk insurance to me very aggressively. How they got my number I have no idea, and they are so rude. I do not think I have ever been so angry at a company as I have been at China Pacific Insurance. They lied to me and said all my auto premiums had been changed from Ping An Insurance to theirs (they had almost tricked me into paying them).
Anyway, I have not been adding or selling any of my Focus holdings. I still think they are going to hit numbers, in large part because of expansion in 2nd and 3rd tier cities. As you might know, I have hated Focus’ LCD business and felt that it was ineffective from a marketing standpoint. I also thought it would cost too much to have to replace the screens because of pollution.
I had dinner a few years ago with their COO and said that I believe they underestimated the wear and tear their screens take and will have to update much more often than they think.
I was right. They just updated a lot of screens, which cost a lot of money, but I have to tell you… the new ones are much bigger and have a much better, eye-catching shape. Now, people look at the screens and it is a much more effective marketing medium than before. I think Focus is going to be stronger going forward.
Here is my concern. Investors are upset and growing tired of some of the shenanigans, so it is a company to have some exposure in, but certainly not as much as Ctrip.
China Mobile continues to boom. My firm estimates that there will be 600 million mobile phone users in China by the end of Q3 with China Mobile taking the lion’s share. Enough said.
Anyway, Chinese consumers remain optimistic as I wrote in BusinessWeek recently (“China’s Rising Retail Market”), so I still would put your money where the Chinese consumer is spending his money or in companies that make money by targeting them.
But while the Olympics is a great thing for China, and the world stage should applaud China for how far and fast it has come, do not overestimate how much two weeks can really positively impact the bottom-lines of companies… it might actually hurt revenue numbers.