Trade Alert: Africa Is Ready For Economic Revolution And A New Name For The Portfolio
Last year, when I reversed my Tesla bear stance, turning bullish and then pounded the table over and over and made TLSA my biggest position at a split-adjusted $50 and finally making it a rare 9+ rated stock when it was below $40 — that’s why guys pay for this service. Fast-forward to today and the powers that be announce that TSLA is going into the S&P 500. Rock on. What does this mean for us and our TSLA stock? Nothing, really. I mean, nowhere in my writing have you ever seen me mention Tesla going into the S&P 500 as a reason to own the stock. In fact, history will show you that on the day or two after the announcement that it’s typically better to sell the stock that gets put into a major index like the S&P 500 and to buy the stock that is being kicked out of the index. However, like everything with Tesla, this is not a typical stock being put into the index.
So in my personal account, I’m not doing anything with Tesla today. In the hedge fund, I’m shorting a couple new TSLA call options dated out to December, nibbling a few puts dated out a couple weeks or so — just to put back on some hedges on this outsized position. It’s a “hedge” fund, see?
As for the markets, instead of focusing on the broad groupings of stocks collectively called “the market” let’s focus on a new name I’m going to introduce to the portfolio today. I’ve been nibbling some Jumia JMIA, making it a still small position but one that I plan on nibbling a little bit more of in the future in my usual patient way. Here’s the story.
Long-time subscribers will recall that I’ve been bearish on JMIA over the past few years since it came public at a much higher price than it’s currently trading at whenever I’ve been asked about it in the chat room. Well, like with Tesla back last year, I’m turning from bear to outright bull on JMIA. It all started a few weeks ago when I was on the phone with my old pal, Gene Munster of Loup Ventures and one of the smartest tech analysts I know. As a matter of fact, the conversation went almost exactly like it did last year when he’d mentioned JD was one of his favorite longs and I was sitting there on some profits from my JD short. I listened to his analysis and then went and did a bunch of my own homework and then decided it was time to buy cover my JD and go long the stock. JD, of course, has more than tripled since that happened. Well, a few weeks ago, one of the names he dropped on me as a bullish pick as indeed JMIA. And I like the risk/reward scenario here enough that I’ve started a small position in the common stock.
Jumia is basically the largest e-commerce player in Africa. Yes, Africa. But the company is actually based in Germany which gives me much more confidence about its financials. Africa is growing fast in population with more than 1.2 billon people (about four times the US population) and many of the countries in Africa’s middle class growth has huge potential, though obviously fraught with the long-term systemic risks and corruption that has long dominated this continent more than others. But I’ve long wanted to invest in companies that serve Africa, not only because of its economic potential (which indeed I think could finally start to be reached) but also because I believe that investing in Africa is probably the single best way to help the economic potential develop. A reflexive virtuous feedback loop, as is often the case.
The stock is trading at “just” 6x next year’s sales estimates which should be up about 30% over this year’s sales estimates. The company is not profitable and probably won’t be for another year or two but the access to funding is there, especially as the stock has now come off its lows and has a real market cap now, so I expect the company will be focused on growth and logistics and trying to create critical mass distribution and payment systems.
Unfortunately, the stock was at $15 when I started editing and putting the finishing touches on this Trade Alert this morning but it has since taken off without any news or anything. The market cap of this thing is just over a billion dollars right now and we all know that our own Trading With Cody buying power can spike a stock like this even further if we all rush in at once. I do expect we’ll be able to nibble this thing over coming days and weeks, but since I don’t know that will happen, I’m going to send out this Trade Alert now as I finished it even as the stock is up 11% on the day already. Nothing’s easy with this job, not that most jobs are easy.
This is clearly a riskier kind of stock and not one to make a huge position in your portfolio. But the upside potential seems high enough and somewhat likely enough that I’m willing to take a small toehold here.
