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Tuesday, February 20, 2024

Top Trade Alert – Jan 24 2024 – JD.com

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Top Trade Alert – Jan 24 2024 – JD.com

We discussed adding JD and BABA in the Morning Report and, while we’re adding both to the LTP, I think JD is less risky due to their large cash position as well as the fact that their CEO hasn’t pissed off the Communist Party.  So, our Top Trade Alert is: 

 🤓  Here is an investor report on JD.com (JD) based on the information available from my web search results. Please note that this is not a professional investment advice and you should do your own research before making any investment decisions.

The Good

The Bad

The Ugly

Summary

  • JD.com is a leading ecommerce and logistics company in China, with a large and loyal customer base, a diversified revenue stream, and a strong overseas presence.
  • However, JD.com faces multiple challenges, including slowing growth, rising competition, regulatory pressure, pandemic impact, and shareholder discontent.
  • JD.com’s current valuation reflects a pessimistic outlook for its future prospects, but it also offers a potential opportunity for long-term investors who believe in its fundamentals and competitive advantages.
  • Based on a discounted cash flow (DCF) analysis, using a 10% discount rate, a 5% terminal growth rate, and a conservative estimate of its free cash flow, JD.com’s fair value per share is about $35, implying a 50% upside from its current price of $23.22 as of Jan 24, 2024. This is a rough estimate and should not be taken as a precise target price.

I agree with Phil’s comment that JD.com’s valuation is stupidly low, as it trades at a significant discount to its peers and its intrinsic value. The company has a strong balance sheet, with $25 billion in net cash, which gives it a financial cushion and flexibility to weather the storm. The company also has a competitive edge in its logistics network, which covers 99% of China’s population and delivers over 90% of orders within 24 hours. The company’s overseas expansion is also a promising growth driver, as it taps into new markets and customers. I think JD.com is a good candidate to add to your portfolio today, as it offers a compelling risk-reward ratio.

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Similar to BABA, we don’t need them up 50% to make 300%, for the LTP, let’s:

    • Sell 20 JD 2026 25 puts for $6.90 ($13,800)
    • Buy 40 JD 2026 $15 calls for $10.70 ($42,800)
    • Sell 35 JD 2026 $30 calls for $4.70 ($16,450)

I feel more confident with JD as they have all that CASH!!! This is net $12,550 on the $60,000 spread so there’s $47,450 (378%%) upside potential at just $30 and we have the 5 open longs so we can absolutely generate income. The June $30 calls are $1 for 149 days (out of 723) but the $25 calls are $2.30 so, if we can get $2.30 for 10 of the short $30s, that’s $2,300 and maybe 5 sales like that would pretty much pay back our entry fee – if all goes well…