Investment Overview
In the equity portfolio, there are some stocks that are worth holding for the next five years. I believe that JD.com is one of the stocks that should be in an investors core portfolio.
The Chinese e-commerce giant has surged by 177% in the last one year. However, there is much more juice in the rally.
I will discuss the key reasons to believe that JD.com will be a value creator in the coming years as well.
Reason One
In 2020, China is expected to overtake the United States and become the largest retail market in the world. This presents a big opportunity for players like Alibaba and JD.com. With a swelling middle-class, China’s consumption expenditure is likely to remain robust. In addition, tier 2 and tier 3 cities provide ample opportunity for growth.
Reason Two
According to analyst estimates, the company’s earnings growth is expected at 51.2% on an annual basis for the next five years. Given this robust growth outlook, the company’s valuation is not expensive. There can be some profit-booking after a big rally. However, the stock will continue to trend higher.
Reason Three
JD.com has one of the best logistics networks in China. This is an important point as companies are looking to expand their presence in semi-urban and rural regions. JD.com, with the logistics network, is best positioned to aggressively increase penetration.
Reason Four
The company’s free cash flow has been growing as margins improve. With a strong balance sheet, the company has the flexibility to pursue organic and inorganic growth. The company has made acquisitions in the past and will continue to acquire attractive companies. Further, as cash flow grows, JD.com can possibly pay dividends in the coming years.
Reason Five
JD Cloud and AI are emerging businesses for JD.com. Alibaba is already the largest cloud service provider in Asia Pacific. JD.com has the potential to expand in these new businesses. In addition, JD Fresh is also a business that can be a long-term game changer. Similarly, JD Health’s growth is gaining traction. Therefore, the company is likely to be more diversified in the coming years.
Conclusion
Given the factors, I believe that JD.com should be in the portfolio of equity investments.
Since broad markets are stretched, investors can consider gradual exposure to the stock on corrections.
In the last one year, the stock has surged by 177%. I will not be surprised if the stock delivers another 100% returns in the next 24-36 months.
