Betting Big on China’s Brand Obsession

For the week, the Nasdaq fell 1.6%, the S&P 500 dropped 0.9% and the Dow Jones Industrial Average pulled back 0.7%. The MCSI Emerging Markets Index fell 0.61%.

Big gainers in your Bull Market Alert portfolio included Alcoa Inc. (AA), which jumped 6.61%, and the ProShares Ultra Real Estate ETF (URE), which rose 2.07%. Alcoa also hit a new 52-week high.

You were stopped out of your position in AbbVie (ABBV) at $55.76 for a gain of 11.62%. Tata Motors (TTM) also hit its stop of $41.57 for a 10% gain.

This week’s Bull Market Alert recommendation is Chinese online retailer Vipshop Holdings Limited (VIPS).

Vipshop began as an online shop offering brand-obsessed Chinese buyers upscale clothing, shoes, accessories and cosmetics at discounted prices.

But Vipshop really hit its stride when it adopted the “flash sales” model. That’s when a fixed quantity of goods becomes available for sale for a limited period of time, usually at a 50-70% discount below its original retail price. This model allows young Chinese professionals to purchase quality brands otherwise beyond their reach.

“Flash sales” also turned out to be the basis of a remarkably profitable business model. Vipshop acquires goods at a discount, sells them at a low price and then ships them out in bulk. That translates into much higher margins when compared to traditional e-commerce companies, which have to maintain massive inventories in a wide range of items.

No wonder Vipshop has been making money hand over fist since first turning profitable in Q3 of 2012. The company has enjoyed triple- or quadruple-digit percentage revenue growth every quarter for several years, including a 126% jump to $701.9 million in its most recent quarter. Earnings per share (EPS) also grew at 533.3% in 2013. Consensus estimates call for EPS to climb another 220% this quarter.

Couple this remarkable growth with consistently improving profit margins over the last few years, and there is good reason to think that the stock has plenty of upside left. Shares jumped nearly 10% on May 15, following the company’s previous quarterly results. The same could happen when the company announces results on Aug. 13.

So buy Vipshop Holdings Limited (VIPS) at market today and place your stop at $155.00. If you want to play the options, I recommend the November $195 calls (VIPS141122C00195000). These options expire Nov. 22.

Portfolio Update

Visa Inc. (V) gained 0.23% last week. I’ve recommended Visa throughout my investment services over the years, and this company remains strong to this day. Growth rates also remain strong in all of its primary regions, operating margins are near 62% per year and there is no end in sight. Visa also buys back 25-30 million of its own shares each year, and it even pays a small dividend. V will report earnings on July 24, after markets close. Visa is a BUY.

Flextronics International (FLEX) lost 2.75%. Flextronics announced a new technology last week in the form of its thin film protective technology offering. This new process allows manufacturers to incorporate high-tech anti-liquid and anti-corrosion protection for electronic products. Have you ever dropped your phone into water? This technology will help against that type of calamity. FLEX is a BUY.

Alcoa Inc. (AA) jumped 6.61% last week on the heels of a strong earnings report. AA also hit a new 52-week high. AA reported earnings of $0.18 per share vs. analysts’ estimates of $0.13. This is a whopping 157% jump from its $0.07 figure just one year ago. Higher future aluminum prices and a projected 7% increase in demand for aluminum helped push future positivity even higher. Morgan Stanley upgraded AA to “Overweight” and CNBC’s Jim Cramer even highlighted AA’s positive future last Wednesday. AA is a BUY.

3D Systems Corp. (DDD) fell 7.81% for its first week in your portfolio after a bit of a correction. 3D Systems was ranked number 13 on Forbes’ list of Most Innovative Companies last week, and this technology certainly lives up to this billing. 3D printing continues to be one of the hottest new technologies, seeing unprecedented leaps in technology over recent years, with limitless possibilities for the future. DDD will report earnings on July 31, before markets open. This is a volatile play, but I believe short covering in this stock will cause the stock to soar on any earnings surprise. DDD is a BUY.

Latest Special Report

I encourage you to read the newly updated version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations for the second half of 2014, as well as bonus picks from each of my fellow investment newsletter editors at Eagle Financial Publications.

Editor’s Note: New Feature! We appreciate that you may use two email accounts during the day and we want to help you keep track of your investments as seamlessly as possible. As a value-added service, we will begin to send these alerts to your second email address if you want. To add your second email address, send us an email from the account you received this at with your name, zip code and your other email address to: customerservice@nicholasvardy.com.