There is no question as to what headline will drive this year’s summer trading volatility: the potential for a trade war between the United States and China. This has been the lead story since the calendar flipped to June, as tweets and off-hour remarks from President Trump have led to increased gyrations and some sizable one-day sell-offs.
Aside from some of the industrial metals stocks, the hardest hit names have been those with even the slightest ties to China. In fact, the Shanghai Index, which tracks mainland Chinese companies, has entered into a bear market. For some reason the mainstream media is not reporting on this topic, but it is very real for investors who own Chinese companies. The one name I like in particular is Tencent Holdings (OTCMKTS:TCEHY).
The broad-based weakness has affected a whole basket of stocks, and because I believe that this trade war will likely never develop, it’s creating a lot of opportunity to buy the dips.
Tencent: A Company With It All
Tencent is a Chinese tech conglomerate that has been a favorite of mine for years because of its ties to many of the mega-trends that will lead the next bull market. Everything from esports to social media to online retail, you name it — TCEHY has it all.
After hitting an all-time high in January, the shares are now down 21% to some of their lowest levels of the year and officially in a bear market. The big news surrounding this company right now is its plan to spin off its online music business. Terms of the deal have yet to be announced, but the potential IPO could be worth around $4 billion. This would mark the second major online music service to go public this year after Spotify (NYSE:SPOT) did so in April.
The Bottom Line on TCEHY
Here’s the bottom line: fears of a trade war and some creative headlines in the media have pushed TCEHY to yearly lows, but this isn’t a stock that will be held down for long. I love this name for its long-term potential and view the current weakness as a great buying opportunity.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.
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