Would you like to invest in a stock that gained 67,000% in the 14 years it has been publicly traded?
I sure hope your answer is yes. If not, you can probably stop reading right now.
Here’s another question: Would you like to invest in a stock that is down 40% over the last eight months?
If your answer to that one is also yes, then…you’re right!
They are actually the same company. A company that is not a household name – at least not in the United States –and yet is right smack in the middle of several of the most exciting investing themes today. That 40% drop is getting a lot of attention, but in my mind it’s a buying opportunity that may not come back around for a long time.
One Company, Multiple Themes
The company is Tencent Holdings (TCEHY), a Chinese tech conglomerate that was one of the top contenders with Alphabet (GOOGL) and Microsoft (MSFT) to join Apple (AAPL) and Amazon (AMZN) in the trillion-dollar market cap club.
Pressure on Chinese stocks has weighed on Tencent, along with a crackdown on China’s gaming sector, trade issues in the U.S., concerns about valuations in tech stocks, and more. The series of headlines has given investors an excuse to sell and taken $220 billion out of the market cap, which is now at $337 billion.
So why the heck would this be a buying opportunity?
Let me count the ways.
1. eGaming: Tencent Games is the largest gaming company in the world. It owns a 40% stake in Epic Games, the company behind the number one videogame in the world, Fortnite. It owns Riot Games, maker of League of Legends.
2. Messaging: WeChat is the number one messaging service in China with one billion users.
3. Music: Tencent Music is the largest music-streaming service in China with over 800 million monthly users. And here’s a kicker: The company has filed to bring Tencent Music public in the U.S. – the symbol will be TME – which could easily be a boost for the company.
4. Economic strength: China is the world’s second-largest economy and still one of the fastest growing in the world, even when it hits a few bumps.
And we haven’t even gotten to the fact that Tencent is a company of companies. Tencent Holdings owns a bunch of big-time businesses in the U.S. and China. It has double-digit stakes in JD.com (JD), China’s largest retailer; 58.com (WUBA), China’s largest classified ads site; Sogou (SOGO), a leading search engine in China, and many more. All told, Tencent has invested more than $20 billion in over 600 deals.
It’s almost like owning an exchange-traded fund or mutual fund, but with a lot more potential.
Tencent, by the way, also has stakes in American companies such as Snap (SNAP), Activision Blizzard (ATVI), and Uber. It owns 7.5% of Spotify (SPOT), which is based in Sweden but trades in the U.S.
There is more to come, too, as the company continues to invest in startups through its venture capital arm. A lot of investors probably don’t even know this exists, but its importance should not be overlooked. For example, just this week Tencent ponied up $180 million for a stake in a Brazilian financial technology company.
Big Upside Potential
Tencent is a terrific long-term holding with big potential over time. It has been a favorite of mine for a long time, and as you can see, it is tied to many of the mega-trends that will lead the next bull market.
Here’s another one: artificial intelligence (AI). Tencent is one of the leaders of China’s big investment in AI. In fact, the company has just joined forces with a London company to use AI in diagnosing Parkinson’s disease.
The recent rout has created a terrific buying opportunity. I can’t tell you the exact moment the stock will turn higher, but over time I look for it to double and possibly more from where it is today. I expect the regulatory issues with gaming in China will start to lighten soon, and when the trade issues with the U.S. are smoothed out, it will be a huge boost to Chinese stocks. Tencent should be one of the winners for a long time to come.