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2021 has been a confusing year for investors. After an amazing rally in 2020, the S&P 500 Index continues its rapid growth with another 18.5% return for investors year to date. Yet, we are seeing lacklustre performances from most Asian markets. The Shanghai Composite Index and Hang Seng Index has dropped about 2% and 5% respectively for the year. Our Straits Times Index has been a great performer with a 10% return this year. However, the index has also been struggling to continue its rally since March.
Currently, it is also a complicated period to navigate as an investor. The neverending pandemic has disrupted the livelihood of many people. The uncertainty and difficulties have led to demonstrations against governments around the world. The recent crackdown against the private sectors in China has also spooked many investors. It can be stressful times for investors looking for directions in the market.
Going Back to Basics
Personally, I have always found it hard to time the market and make our investment decisions based on the market. A more rewarding method for me has been to focus on the fundamentals of the businesses and not worry about any short term market movements. For companies that have strong fundamentals and great potentials for the long term, they have high possibilities of surviving any downturn and even grow for the future.
So, after searching for months in the market, we found three companies that might fit those qualities. For long-term investors, these might just be what you are looking for.
For The Growth Investors: Roblox Corp (NYSE: RBLX)
Roblox Corp is an innovative gaming company that is bringing a new genre of game to the market. Instead of developing its own games and selling them, Roblox created a platform for anyone to create games with. The idea has really caught on and there are now many creators on Roblox, some earnings millions a year on the platform. Roblox will then share the revenue made from these games with the creators, very similar to Youtube. A Roblox creator, or better known as a Roblox developer can make money in various ways. The most direct way is for a developer to create a game within Roblox. All the games run in a Freemium model. This means that most games are free-to-play. But gamers can then buy additional items called “Game Pass” to improve their character or have a better experience in the game. Roblox will then share this revenue with the developers. However, Roblox has grown so big that it now has its own currency exchange called the “Developer Exchange Program”. Developers who earned the in-game currency can use the Developer Exchange to change their in-game currency into real-world currencies. The developers can also sell their games directly back to Roblox in some instances and get a payout directly. Roblox will then monetise these games on its own. Due to the huge community that Roblox can attract, with more than 40 million daily active users and close to 200m monthly active users, there is an internal ecosystem evolving within Roblox as well. Smaller Roblox developers can become sub-contractors for the more successful Roblox developers in making some portion of the games or even trades items with the in-game currencies.
The model for Roblox Corp is working very well. Its revenue for its first quarter this year shot up 140% to USD 387 million. With its huge player base, Roblox can also add advertising and corporate deals into its revenue stream. It can help companies create a virtual event or even create games based on its’ client intellectual properties. For example, Netflix launched a “Stranger Things” experience on Roblox, allowing it to create a different form of connection with its viewers.
The Ideal Outcome
Roblox Corp can be considered as a “Startup” stock where there is still considerable risk involved in the company. For one, the core user of Roblox are still kids, mostly below the age of 12, who might have limited spending power. For it to be a more mainstream platform, it would need to appeal to a wider audience in the future. If it can do that, it would greatly increase the addressable market and potential of the company. For now, If you are an investor looking for unique and game-changing companies, then Roblox might be one you want to watch.
For Investors Looking for Stability: Apple Inc (NASDAQ: AAPL)
Apple is the largest listed company in the world with a market capitalisation of more than USD2.5 trillion. Yet, the company just reported a 36% growth in its revenue in the most recent quarter. Amazingly, its net profit for the quarter almost doubled from a year ago. Apple has also shown that even with the pandemic and the US-Sino tension, it continues to grow. That is showing us just how resilient the brand and business is.
Now Apple is making a promise to consumers that it will always protect our data, in an attempt to make us feel safer to share more with Apple. With its new developments like Apple Wallet and Apple Health, it means we will be sharing personal financial data and health information with Apple. Once we start sharing such sensitive information with Apple, we might become more dependent on them, making us Apple customers for life. This is something other technology companies will find hard to follow. So Apple has created an even stronger moat for itself going forward.
Lastly, Apple has demonstrated it has the ability to completely reinvent an industry. It has done it before with the computing industry with the first iMac, then with the music industry with iPod, the phone industry with iPhone and the watch industry with Apple Watch. Today, there are reports suggesting that Apple is working on an Apple Car. If the company can reinvent itself again in the automotive industry, it can still transform the company to even greater success. For investors who are looking for a resilient business that still has great potential, Apple Inc might be one to watch.
For Investors Who Are Bullish on the Future of China: Sunny Optical (HKG: 2382)
Sunny Optical Technology is an optical lens manufacturing company. It is the 2nd largest handset lens manufacturer in the world and the largest in China today. It has factories in the mainland, India and Vietnam and a global research team. The company produces all types of lens products from mobile phones camera, automotive lenses, headlights, LIDAR systems, security cameras, webcams, VR/AR optical components to lens for medical and scientific instruments.
Sunny Optical has been growing very well. It grew its revenue by 35.3% a year over the past decade while its profit grew at 41% a year over the same period. That growth was largely fueled by the rise of the China handset brands. Smartphone brands like Huawei, Vivo, Xiaomi, Oppo are now global brands and have experienced immense growth over the past decade. These companies also contributed about 60% of the revenue of Sunny Optical.
Now the company is tagging on to the growth of another industry, automotive. The automotive camera lens industry is expected to grow at about 18.5% a year over the next 5 years. And Sunny Optical has already established itself as the leader in the vehicle lens market.
There are two tailwinds lifting Sunny Optical in this arena. For one, China is one of the largest automotive markets in the world. It is also a key automotive manufacturing hub globally. China also wants to be the leader in electric vehicles (EV) globally. As Sunny Optical is already part of the supply chain within the eco-system, it can easily tag on to the growth of this sector. Moreover, as autonomous technology and driver-assistance software improve, the need for cameras and other sensors in a vehicle will only increase exponentially. Tesla currently utilised 9 cameras module on its vehicles while a fully autonomous vehicle from Waymo carries about 29 cameras in its vehicle. As this technology becomes more mainstream and works its way down to other vehicles, Sunny Optical is already the main supplier to support this growth. We can see that the company is already benefiting from this new trend. Its shipment for its vehicle lens grew more than 34% this year. Although the company is showing some slowdown in its shipment in recent months, that is not due to weak demand but rather due to shortage in components in the automotive industry. If the industry supply catches up with its demand, we might be able to see Sunny Optical start growing even faster. Today, Sunny Optical is listed on the Hong Kong Stock Exchange with a market capitalisation of HK$260 billion. For investors interested in the Chinese market and also the development of EV and autonomous vehicles, Sunny Optical might be one you want to research more on.
If you want to access detailed reports more about Sunny Optical and Roblox, you can sign up for a free POEMS account where you can access their internal analyst reports about the two companies.
The most important partner when we are starting out in investing is our broker. Having a great brokerage can help us save money and headache over the long term. With POEMS’ comprehensive services, I can easily track and manage my portfolio from just one account. Remember the current promotion from POEMS will only last for this month of August only. For any new account opening during August, you will enjoy 1 Month of free US Trades by starting with just a simple $3,000 portfolio. You will also receive an additional 2000 POEMS rewards points which can be redeemed for up to $40 worth of GrabFood vouchers!