These Tech Stocks are in the Crosshairs
There’s been an alarming trend for some of the world’s most popular tech stocks – one that could cost investors that aren’t careful a lot of money.
The stock market can test the mettle of even the most experienced Wall Street veterans.
As traders, we spend a lot of time weighing the various merits of an investment before jumping in. We use the best, most up-to-date information and analytics to identify the right trades.
But sometimes, even an otherwise solid trade can be torpedoed by forces outside of our control or ability to foresee.
Some bad press, a new piece of legislation, a natural disaster, or any number of outside causes that can turn a lucrative trade into a nightmare scenario.
While it may be impossible to predict some of these events, making the appropriate reaction to them is vital.
Yesterday, we saw yet another warning sign for one of the most volatile and dangerous places for investors right now.
I’m talking about Chinese tech stocks.
While there is potentially life-changing profit potential in these companies based in the world’s second largest economy, there are also huge pitfalls.
And knowing which stocks to avoid is crucial to navigating this space.
Where’s the money?
The Chinese government claimed yet another victim yesterday as its scrutiny of tech firms continued.
Just days after its IPO in U.S. markets, the Chinese government has dealt a huge blow to DiDi Global Inc. (DIDI) – a Beijing-based rideshare company similar to Uber or Lyft.
This latest incursion against a Chinese tech company comes as the Chinese government issued broad warnings about its desire to strengthen oversight of data security.
Amid the latest crackdown on Chinese companies that trade publicly on foreign exchanges, Didi has been forced to remove its application from app stores. Those that have already downloaded the app can continue to use the rideshare service, but the ruling has effectively prevented Didi from expanding its user base until a resolution is reached.
As a result, DIDI stock plunged more than 25% at its lowest point during yesterday’s trading, wiping out roughly $22 billion in value for China’s largest rideshare company.
As Chinese President Xi Jinping expands his inquisition of the largest tech firms in the country, more than $42 billion has been erased from the affected stocks.
So while the space is certainly fraught with danger, those bold enough to jump into the right stocks at depressed prices could come out on top in a big way.
Here’s one name I’ll be targeting…
How do I get some?
In hindsight, Didi undoubtedly regrets having gone ahead with its IPO. The Chinese government had reportedly requested three months prior that Didi delay its IPO amid concerns about the security of the massive amount of user data on its servers.
And now early investors are paying the price for that decision.
The trouble with China’s tech crackdown is that there’s no telling who will be next.
But therein lies a clue about what may be one of the best bets in the Chinese tech world.
In December of last year, China halted the $35 billion IPO of Ant Group - a financial company owned by Alibaba Group Holding Limited (BABA) – China’s largest e-commerce platform. Alibaba was then fined $2.8 billion in April 2021 as part of China’s investigation into antitrust practices.
Having seemingly made it out of the other side of China’s tech crackdown, and with expectations that Ant Group could revive its IPO hopes by the end of this year, BABA stock may be a great buy right now.
As it hopes to put the government’s crackdown in the rearview mirror, BABA is currently sitting at a support level that has held several times since May.
Assuming no further investigations and fines are forthcoming for “the Amazon of China,” the current share price could offer investors a great floor to enter a new position or pick up additional shares.
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In the Spotlight: The apes take over AMC…
Retail investors of AMC Entertainment Holdings, Inc. (AMC) – who often refer to themselves as “apes” – have been the major driving force behind the price of the stock this year.
But now it seems they are also able to influence decisions of the company’s top executives in a big way.
On Tuesday morning, AMC announced that it was dropping its request to shareholders for permission to sell 25 million additional shares.
The decision comes amid widespread disagreement among AMC’s investors.
Retail investors that have bought into the “meme stock” in an effort to squeeze short traders have been resistant to offering new shares.
While the funds raised by the new offering could be used to pay off debt and strengthen AMC’s position, AMC CEO Adam Aron stated via Twitter that the company did not want to proceed with its shareholder so divided on the issue.
It’s clear that AMC is wary of upsetting retail investors – which now make up more than 80% of its shareholders – as they also make up a large percentage of the theater chain’s customer base.
For the most part, AMC has made some incredibly shrewd moves to leverage its meme stock surge and firm up its bottom line. And keeping their base happy is just the latest one.
With the rollout of summer blockbuster movies, AMC will be hoping for a big turnout from moviegoers. With no new shares on offer for the rest of 2021, that revenue will go a long way to sustaining the company’s elevated stock price.
This is one of the most interesting names in the market to watch right now, and I’ll keep you up to date on any further developments here in Profit Pregame.