This year has turned into a challenging one for emerging market investors, as China remains weak (at least relatively so), Brazil and Mexico seem to be turning in the wrong direction, and multiple Southeast Asian markets sell off on macroeconomic worries. Even so, business continues on at Copa Holdings (NYSE:CPA), where a strong and savvy business plan has led this Latin American airline to not only strong margins and good growth, but solid prospects for the coming years.
An Old Model with New Profitability
Copa operates a familiar, tried-and-true hub-and-spoke model, serving 65 destinations in 29 countries. A large percentage of the company's business goes through Panama City, where the company has more than 85% market share, and this is a logical geographical hub for connecting flights from/to North America, Central America, and South America.
What's a little unusual about Copa is that so many of its routes are thinly traveled. Roughly 75% of the company's routes average fewer than 20 passengers per day. You might think that serving such tiny markets would be terrible for the financials, but Copa does a good job of matching its capacity to its demand. It does such a good job, in fact, that the company's operating margins are the highest in the world among publicly-traded airlines ��well ahead of Latin American comparables such as LATAM Airlines (NYSE:LFL), GOL Linhas (NYSE:GOL), not to mention American operators like Southwest (NYSE:LUV) and high-margin carriers like Japan Airlines and Turkish Airlines.
Not only are those routes profitable, but that thin passenger traffic keeps rivals at bay. The demand and opportunity for direct routes is relatively limited across Central and South America, leaving the company with relatively low risks on those routes.
Expansion and Competition
Copa's main challenge will be managing its future growth. The company has expanded its operations in Colombia, bringing it into competition more often with Avianca, and it is likely that LATAM Airlines, GOL, and Aeromex will factor more into the company's competitive picture going forward. As investors have seen over and over again in the U.S. airline sector, competition is rarely ever a good thing, and although Copa's model seems straightforward, it remains to be seen how far the company can extend before competition starts chewing into that robust operating margin.
Still, Copa can ride a generally rising tide. As the economies of countries like Panama and Colombia grow, air travel demand is also increasing. As individual incomes and wealth improve, air travel demand increases and so too do the expectations of those travelers ��service quality, safety reputations, and so on make more and more of a difference, and that should work in favor of well-established larger carriers like Copa and LATAM Airlines. To frame the argument a little more definitively, while Latin America has about 9% of the world's population, IATA statistics indicate that it accounts for only 5% of global air passenger volume ��even just closing half of that gap would represent a significant increase in the number of passengers for airlines in the region.
Strong Loads, but Fuel Is Always a Risk
About a month ago, Copa reported second quarter earnings that saw revenue rise 15% despite a 2.5% decline in revenue per available seat mile that was driven by lower yields (down almost 5%). The load factor was pretty good, though, as it rose 1.7% to over 75%. As I said before, one of the positives to the Copa model is that they make sure they don't fly empty seats.
Top 10 China Stocks To Own For 2014: China Automotive Systems Inc.(CAAS)
China Automotive Systems, Inc., through its interests in Sino-foreign joint ventures, engages in the manufacture and sale of power steering systems and other component parts for the automotive industry in the People?s Republic of China. It offers a range of steering system parts for passenger automobiles and commercial vehicles. The company provides 4 separate series, 307 models of power steering, including rack and pinion power steering, integral power steering, electronic power steering and manual steering, steering columns, steering oil pumps, and steering hoses. China Automotive Systems, Inc. was founded in 2003 and is headquartered in Jing Zhou City, the People?s Republic of China.
Top 10 China Stocks To Own For 2014: BHP Billiton Limited(BHP)
BHP Billiton Limited, together with its subsidiaries, operates as a diversified natural resources company worldwide. The company engages in the exploration, development, and production of oil and gas; mining and refining of bauxite into alumina, and smelting of alumina into aluminum metal; and mining of copper, silver, lead, zinc, molybdenum, uranium, gold, diamonds, and titanium minerals, as well as development of potash deposits. It also involves in the mining and production of nickel products, manganese ore, and manganese metal and alloys, as well as in the mining of iron ore, metallurgical coal, and thermal coal. BHP Billiton Limited sells its copper, lead, and zinc concentrates, and alumina to smelters; copper cathodes to wire rod mills, brass mills, and casting plants; uranium oxide to electricity generating utilities; rough diamonds to diamond buyers and diamond manufacturers; nickel products to stainless steel, specialty alloy, foundry, chemicals, and refractory ma terial industries; metallurgical coal to steel producers; and energy coal to power stations, power generators, and industrial users. The company, formerly known as BHP Limited, was founded in 1885 and is headquartered in Melbourne, Australia.
Advisors' Opinion:- [By Robert Hsu]
The miner has agreed to purchase the iron-ore contract mining division of contractor Leighton Holdings, which services BHP Pilbara operations. This will allow the mining company to switch to an owner-operator model, leading to reduced cost and increased safety oversight.
Iron ore accounts for about 40% of BHP’s earnings, and the move here is a good one for the company.
In addition, BHP chairman Jacques Nasser recently discussed in an interview with China newswire Xinhua that his company is confident about sustained growth in China. Nasser said the global market turmoil has not changed the company’s view.
Nasser said: "China will continue to grow. I was there recently, and I walked away believing their focus was right, that we may not see 10, 11, 12% growth anymore, but we will see 7, 8, 9% growth, and the texture of the growth may change." Buy BHP.
Top High Tech Stocks To Invest In Right Now: eLong Inc.(LONG)
eLong, Inc. operates as an online travel service provider in the People?s Republic of China. The company provides its customers with travel information and the ability to book rooms, air tickets, vacation packages, and other travel related services utilizing call center and Web-based distribution technologies. It facilitates the customers to book rooms in approximately 10,000 hotels in 450 cities across China, and fulfills air ticket reservations in approximately 80 cities across China. In addition, the company offers the ability to book rooms at approximately 100,000 hotels outside of China; and provides the customers informative content relevant to hotel and air travel decisions, including tourist and event site destination information, hotel facility information, and photos. eLong markets its services through online marketing, traditional media advertising, co-marketing with established brands of other companies, and direct marketing. The company was founded in 1999 and is headquartered in Beijing, the People?s Republic of China. eLong, Inc. operates as a subsidiary of Expedia Asia Pacific Limited.
Advisors' Opinion:- [By cnAnalyst]
eLong, Inc. (ADR) (NASDAQ:LONG) is the 10th best-performing stock last month in this segment of the market. It was up 62.09% for the past month. Its price percentage change was 17.47% year-to-date.
Top 10 China Stocks To Own For 2014: China Security & Surveillance Technology Inc. (CSR)
China Security & Surveillance Technology, Inc., together with its subsidiaries, manufactures, installs, distributes, and services surveillance and safety products, systems, and software in the People?s Republic of China. The company?s products include standalone digital video recorders (DVRs); embedded DVRs; mobile DVRs; real-time hard-compression coding cards; DVR compression boards; digital cameras; intelligent high-speed dome cameras; intelligent control system software platforms; perimeter security alarm systems; monitors; and radio frequency identification terminals and data collectors. It serves various customers, which include governmental entities, such as customs agencies, courts, public security bureaus, and prisons; non-profit organizations, including schools, museums, sports arenas, and libraries; and commercial entities consisting of airports, hotels, real estate, banks, mines, railways, supermarkets, and entertainment venues. The company is headquartered in S henzhen, the People?s Republic of China.
Top 10 China Stocks To Own For 2014: Focus Media Holding Limited(FMCN)
Focus Media Holding Limited, a multi- platform digital media company, operates out-of-home advertising network using audiovisual digital displays in China. It operates out-of-home advertising network based on the number of locations and flat-panel television displays in its network. The company, through its multi-platform digital advertising network, reaches urban consumers at locations and point-of-interests over various media formats, including audiovisual television displays in buildings and stores, advertising poster frames, outdoor light-emitting diode digital billboards, and Internet advertising platforms. As of June 30, 2010, its digital out-of-home advertising network had approximately 142,000 LCD displays in its LCD display network and approximately 275,000 advertising in-elevator poster and digital frames, installed in approximately 90 cities. The company also provides Internet marketing solutions; and sells software licenses and services, primarily including Adf orward software. Focus Media Holding Limited was founded in 1997 and is based in Shanghai, the People?s Republic of China.
Advisors' Opinion:- [By Hesler]
Focus Media operates the largest out-of-home advertising network in China using audiovisual flat-panel displays based on the number of locations and number of displays in its network. Focus Media Holding Ltd. has a market cap of $4.55 billion; its shares were traded at around $31.4 with a P/E ratio of 31.4 and P/S ratio of 8.82.
George Soros sold out of his position of almost 2 million shares in Focus Media Holding in the fourth quarter of 2009 when the stock had reached $14, after falling as low as $7.45 in the second quarter of 2009. He purchased 400,000 shares in the first quarter 2011 at an average price of $26.22 per share. Year to date the stock price has risen 42.5%.
Most of Focus Media’s revenue growth in the first quarter was driven by advertising and its LCD displays. Focus Media’s advertising net revenue for its LCD display network increased 63%, advertising net revenue from its poster frame network increased 46%, and advertising net revenue from the in-store network increased 23%, from the first quarter 2010. Its net revenue from its LCD display (including a movie theater network), in-store and poster frame businesses increased 54%.
The company’s net income for the first quarter of 2011 was $20.5 million, increased from a net loss of $1.0 million in the first quarter of 2010.
In the first quarter, the company has also spent $240 million repurchasing shares, out of a $300 million share repurchase program, and has plans to buy a 15% stake in Enjoy China Technology Development Company Limited.
Top 10 China Stocks To Own For 2014: iSoftStone Holdings Limited(ISS)
iSoftStone Holdings Limited provides various information technology (IT) services and solutions in the Greater China and internationally. It offers an integrated suite of IT services and solutions, including consulting and solution services, IT services, and business process outsourcing (BPO) services. The company provides a range of consulting services for an overall engagement or discrete consulting services in conjunction with other services. It also develops industry-specific solutions, including treasury management, cash management, property and casualty insurance core, financial holding company business analysis, trust company core, and banking risk management solutions for banking, financial services, and insurance industries; supply chain management, enterprise information portals, business intelligence, business process integration, and management and e-commerce solutions for energy, transportation, and public sectors; mobile and embedded technology, next generati on platforms, business intelligence functionality, and network security products for the communications industry. In addition, the company offers various IT services consisting of application development and maintenance, research and development, and infrastructure and software services. Further, it provides a range of BPO services, such as securities trade processing services for the investment banking industry; digitization and archiving of policyholder information, as well as account processing and customer service for insurance industry; and cross-industry BPO services comprising finance and accounting, customer care, and human resources. The company was founded in 2001 and is headquartered in Beijing, the People?s Republic of China.
Advisors' Opinion:- [By Lowell]
iSoftStone Holdings Limited Ame is an IT service provider operating an integrated service delivery platform for IT services and solutions in the Peoples' Republic of China. Isoftstone Holdings Ltd. has a market cap of $779.58 million; its shares were traded at around $15.38 with and P/S ratio of 3.96.
Soros bought 510,345 shares of iSoftStone Holdings Ltd. in the first quarter of 2011, at an average share price of $19.28. The stock price has declined 12.38% year to date.
The company operates a suite of IT services and solutions, including: IT services, which primarily includes application development and maintenance (ADM), as well as R&D services and infrastructure and software services; consulting and solutions; and business process outsourcing (BPO) services.
iSoftStone’s first quarter 2011 revenues of $20.5 million, increased from $13.8 million in the same quarter 2010. Net income increased to $5.2 million from $788,000 in the same quarter 2010. The company’s operating expenses grew 30% from the first quarter 2010 due to in large part to a continuing investing in management capacity, sales force and marketing efforts to support top-line growth and research and development activities. Net revenues in each of its global markets, which comprise almost 45% of its business, increased as well. iSoftStone is affected by seasonal trends and its first quarter results are typically lower than other quarters.
iSoftStone will be expanding into the public sector for the first time through a multi-million-dollar project they won in the first quarter. “We believe the contract gives us great entry point to grow our presence in the public sector,” the company said in a statement.
Top 10 China Stocks To Own For 2014: TAL Education Group(XRS)
TAL Education Group, together with its subsidiaries, provides K-12 after-school tutoring services in the People?s Republic of China. It offers tutoring services to K-12 students covering various academic subjects, including mathematics, English, Chinese, physics, chemistry, and biology. The company provides tutoring services through small classes; personalized premium services, such as one-on-one tutoring; and online course offerings. As of May 31, 2011, it operated a network of 199 physical learning centers in Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Nanjing, Hangzhou, Chengdu, and Xi?an; and eduu.com, an online education platform for online courses. The company also offers education and management consulting services, as well as sells software. It operates under the Xueersi brand. The company was founded in 2003 and is headquartered in Beijing, China.
Top 10 China Stocks To Own For 2014: AsiaInfo-Linkage Inc.(ASIA)
AsiaInfo-Linkage, Inc. provides telecommunications software solutions and information technology (IT) products and services to telecommunications carriers and other enterprises in the People?s Republic of China. The company offers business and operation support systems product suites, including OpenBilling, a billing solution for telecommunications operators; OpenCRM, a CRM solution suite for telecommunications operators; OpenBOSS, a carrier-class business operation support system solution; OpenBI, a carrier-class operating analysis and decision support system platform; OpenPRM, a system that calculates, manages, and reconciles payment for intercarrier network access. It also provides network management solutions comprising NetXpert, a data and Internet protocol network management solution; and OpenXpert, an integrated telecommunications network management system. In addition, the company offers service applications products, such as Mail Center, an online messaging softwa re; Spam Patrol software for real time anti-spam control; and Net Disk, a network hard disk product, which facilitates Internet-based file transfer, sharing, and management, as well as supports other functions, such as data processing of short message folders and synchronization of mobile devices. Its service applications products also include Internet Short Messaging Gateway, a business support platform for value-added short messaging services; and Device Management Platform that enables mobile operators to manage various mobile devices and perform remote mobile device management, such as remote diagnosis and parameter setup. In addition, it offers software enhancement and maintenance, system integration, and other value-added IT consulting and planning services. The company was formerly known as AsiaInfo Holdings, Inc. and changed its name to AsiaInfo-Linkage, Inc. in July 2010. AsiaInfo-Linkage, Inc. was founded in 1993 and is headquartered in Beijing, the People?s Republ ic of China.
Top 10 China Stocks To Own For 2014: Qihoo 360 Technology Co. Ltd.(QIHU)
Qihoo 360 Technology Co. Ltd. provides Internet and mobile security products in the People's Republic of China. Its principal products include 360 Safe Guard, an Internet security product for Internet security and system optimization; 360 Anti-Virus, an anti-virus application to protect users? computers against trojan horses, viruses, worms, adware, and other forms of malware; and 360 Mobile Safe, a security program for the Google Android, Apple iOS, and Nokia Symbian smartphone operating systems. The company?s platform products comprise 360 Safe Browser, a Web browser; 360 Personal Start-up Page, a default homepage of 360 Safe Browser and a key access point to popular and preferred information and applications; 360 Application Store, a key access point to securely obtain and manage software and applications; and 360 Safebox, a solution that protects users against thefts of personal account information. It also provides online advertising services, including online marketi ng services and search referral services; and Internet value-added services comprising the operation of Web games developed by third-parties, remote technical support, and cloud-based services. The company was formerly known as Qihoo Technology Company Limited and changed its name to Qihoo 360 Technology Co. Ltd. in December 2010. Qihoo 360 Technology Co. was founded in 2005 and is based in Beijing, the People?s Republic of China.
Top 10 China Stocks To Own For 2014: China Mobile(Hong Kong)
China Mobile Limited, an investment holding company, provides mobile telecommunications and related services primarily in the Mainland China. It offers various services comprising local calls, domestic long distance calls, international long distance calls, domestic roaming, and international roaming. The company also provides voice value-added services, including caller identity display, caller restrictions, call waiting, call forwarding, call holding, voice mail, and conference calls; customer-to-customer messages and corporate short message services; and mobile Internet access services. In addition, it engages in other data businesses, which primarily include multimedia messaging services; color ring services that enable users to customize the answer ring tone from various selection of songs, melodies, sound effects, or voice recordings; and mobile reading, mobile gaming, mobile video, mobile payment/wallet, mobile TV, mobile market, and Internet data center services. F urther, the company offers telecommunications network planning, design, and consulting services; roaming clearance services; technology platform development and maintenance services; and mobile data solutions, and system integration and development services, as well as operates a network and business coordination center. Additionally, China Mobile Limited sells mobile phone handsets and devices. As of March 31, 2011, it served approximately 600.8 million customers. The company was formerly known as China Mobile (Hong Kong) Limited and changed its name to China Mobile Limited in May 2006. China Mobile was founded in 1997. The company is based in Central, Hong Kong, and is considered a Red Chip company due to its listing on the Hong Kong Stock Exchange. China Mobile Limited is a subsidiary of China Mobile Hong Kong (BVI) Limited.
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