Chinese Internet stocks the best performing sector in 2023 ? A look at Stellantis and HK activist David Webb's holdings...

Credit Acceptance Corp getting investigated

'This piece is an opinion and for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.'

Good morning!

To all the new subscribers that I gained through my 2022 review, hello 👋. To my loyal readers -  welcome back 🤗.

It took more than half a year, but yesterday Credit Acceptance Corp, which I am short, is under investigation by the New York Attorney General. The company has had dozens of lawsuits already, and with the increasing interest rates, profitability will evaporate. As it is an illiquid stock, it is quite hard to short more (Interactive Brokers had no more shares to borrow yesterday).

In terms of Petrobras news, the potential new CEO said -  that they will sell fuel in line with international prices. Nice.

Stellantis

Stellantis, the carmaker that owns the brands Jeep, Fiat, Citroën, Dodge, Opel, Ram, Peugeot, Alfa Romeo and a few others -  is the last one of the Peter Cundill stock screen that I am looking at. From the three companies that were left, I decided to pass on Man King Holding, buying into Lion Rock Group.

Stellantis is another one, that I will add to my portfolio. Whenever the Fiat Group before the merger was as cheap, returns were exceptional. Furthermore, their CEO Carlos Tavares had experience as the number two behind Carlos Ghosn at Renault, and turning around the PSA (Peugeot, Citroën Group), bringing them back to profitability and relieving us of the dreadful designs of Peugeot's past.

Now I don't think he is as exceptional as the deceased CEO of Fiat Sergio Marchionne, but I still think he will deliver great returns. The Peter Cundill screen assures that the stock is cheap enough on all basis - the question now is -  what about the recession?

I have looked at loads of outlooks from banks for 2023. They all predict a recession early in 2023 and then the start of the bull market in the second half of 2023. But what is that doesn't materialize. Yes, the extreme spending, especially in non-essential consumer products like Apple, Nvidia etc. will probably slow down - but after looking at the outlook of the retail and housing sector, I don't think there is a recession in the first half of 2023.

Stellantis might not have brands that appeal to me, but they are undervalued and the Fiat 500e, and Peugeot e-208 EV are among the best-selling EVs in Europe. Payout ratio is 14.7%, so there is a margin of safety with the dividend. To build a position, half are common shares -  and the other ones are $15 Jan 2025 Leaps. Value stocks still look historically cheap in contrast to growth stocks, and I think Stellantis is a good way to play it.

My guess on the best performing sector in 2023

Please continue to write me messages or ask questions in the comments -  I absolutely love answering them. I got a great question a week ago, what I think the best performing sector in 2023 will be. My mind instantly went to energy, but I believe that it needs to consolidate for quite some time - until returns for the whole sector are good again. Silver might also do well, but I am not so sure about the timing.

My best bet for a whole sector (although I think that we are now in a stock pickers market), would be Chinese Internet stocks like Tencent, Alibaba or the ETF KWEB. Fundamentally, these companies are no doubt undervalued, and they have traded more on sentiment than on underlying earnings. Tencent, Alibaba have tremendous management teams, being priced at ridiculously low levels and others like Pinduoduo are at least reasonably priced.

I like situations where fundamentals decouple from sentiment, and then let technical analysis guide me for the entry point.

We recently got such a point. The technicals look eerily similar to the Energy Select Fund (XLE) when it started its rise in 2021.

KWEB has recently clearly broken through the downtrend that has existed since 2021 and also jumped through was used to be a support area in 2016. I don't use technical analysis to predict the future, just like P/B -  I use it as information to help me with investment decision - but it is probably just astrology for investors. I bought a small position of Jan 2024 calls, that are ITM. It is small enough that, even a total loss, would be easily manageable - but I like the risk/reward here.

David Webb and looking at his holdings

David Webb is a legendary activist Hong-Kong investor, who retired recently as he was diagnosed with cancer. He has done everything he could do to advance corporate governance in Hong Kong and his investigations unraveled whole networks of fraud, illegal financing and trading activities of many companies. Here is a great article about him from Forbes.

He has beaten the market by a significant amount since 1995, and his Christmas stock tip that he gave from 1999 to 2008 returned a cumulative 1118% compared with just 87% of the Hang Sang Index over that period.

Despite being retired, he is still invested into many small caps. We can only see companies, where he has more than 5%, due to the disclosure requirements in HK. I have taken the list from his "webb-site" and from the HK Exchange of substantial shareholders and compiled them into one. The ones in yellow, are where he sold before, and I can't know if he still holds a position under 5% or if he sold out completely.

He also owns Lion Rock Group, and he is still holding on to the subsidiary of them Left Field Printing Group. I am not going to analyze these two, as I already own a position in Lion Rock Group. As a value investor, this list warms my heart. Net-Nets, liquidation plays some reasonable growth at super cheap prices. However, they can't be disqualified as easily, as other investment methods can. For that reason - I will analyze them next time