2024: Year of Dragon 7
China Tech
As the year kicks off, I typically ponder on the easiest trades of each year, especially those that are no-brainers.
Here are some insights:
Easiest trades for 2020 to 2022
Annually, I review the easiest trades of the year. Here are the easiest trades for 2020s:
2020 - Year of CRYPTO
2021 - Year of TINA
2022 - Year of YEN
These are detailed in a post below.
2023: Year of the Magnificent 7
In 2023, we witnessed the rise of Magnificent 7 comprising of Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla. Collectively, they are the largest companies in the US, constituting around 28% of the S&P 500 index.
These tech giants rose an average of 112%, accounting for an incredible four-fifths of the 26% return of the S&P 500 index. Among them, Nvidia emerged as the star performer, boasting an extraordinary 239% return.
This extraordinary performance marks 2023 as the Year of Magnificent 7.
Year of the Dragon 7
I was recently in Wales for a holiday, where the Red Dragon proudly symbolizes the nation.
Looking at the Red Dragon struck a serendipitous chord within me, as 2024 is also the year of the Dragon in the Chinese zodiac calendar.
This prompted me to envision 2024 as the Year of Dragon 7.
Intrigued by this vision, I have curated the Dragon 7, a collection of the top tech giants in China:
Tencent
Alibaba BABA 0.00%↑
PDD Holdings PDD 0.00%↑
Meituan
NetEase NTES 0.00%↑
JD JD 0.00%↑
Baidu BIDU 0.00%↑
Over the past three years, the Dragon 7 has been wounded. Their share prices, on average, have plummeted 44%.
Despite this, their fundamentals tell a different story. During this same period, the Dragon 7 witnessed an extraordinary 206% EPS growth from FY21 to FY23e. Even excluding the outlier of PDD’s 635% EPS growth, the average remains an impressive 135%.
Their share price should be up 100%, similar to the Magnificent Seven. Instead, it has declined. This makes the Dragon 7 a once-in-a-generation opportunity.
A no-brainer!
This could be the easiest trade for 2024.
Moreover, the Dragon 7 is trading at a bargain valuation of 15.1x P/E and a robust 14% estimated earnings growth. They also hold substantial cash reserves, with an average net cash representing 24% of their market capitalization.
In conclusion, the investment case for the Dragon 7 is compelling, fueled by the stark disparity between strengthening fundamentals and declining share prices.
As we enter 2024, the Dragon 7, having weathered a bruising three-year period, might emerge as the dark horse.
This is GREAT! I love the Dragon 7!