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China-Focused Fund Manager Fang Zheng Makes Big Moves in Tesla Inc (TSLA), NVIDIA Corporation (NVDA), Alibaba Group Holding Ltd (BABA)

By Harriet Lefton

Fang Zheng, of the $162 million Keywise Capital fund, has adjusted holdings of three key stocks: Tesla Inc (NASDAQ:TSLA), NVIDIA Corporation (NASDAQ:NVDA) and Alibaba Group Holding Ltd (NYSE:BABA)- according to 13F forms filed with the SEC. Zheng is managing director of the tech-focused fund which is based in Hong Kong but with a research office in Beijing. The fund aims to be one of the leading asset management companies for the Greater China markets (mainly Hong Kong, China, Taiwan and Singapore).

In terms of its investment strategy, Keywise says it “employs a fundamental, bottom-up investment style” adding that its “experienced investment team is striving to generate returns with both our long/short and long-only strategies through on-the-ground independent research.” In 2015, the fund made headlines when it joined with Milltrust International to launch the Milltrust Keywise China Fund. This new fund was set up to replicate the alpha of flagship Keywise Phoenix Development Fund (which in 2015 had annualized 20% since inception) by trying to find companies in the region with sustainable business models, strong management and reasonable price.

Zheng himself came to the fund after co-founding Neon Liberty Capital Management in 2002. Prior to this he was Vice President and portfolio manager at the JP Morgan Emerging Market Equity Group where his responsibilities covered the team’s Asian investments. Zheng, who was at JP Morgan for six years, began his career at the Ministry of Machinery and Electronics Industries in China, and Rockefeller & Co in New York as an equity analyst. Mandarin-speaking Zheng graduated from the University of International Business & Economics in Beijing, as well as Harvard Business School.

Now let’s see how Zheng played three key stocks in Q1:

Tesla Inc

Zheng initiated a new position in Tesla in Q1 with the addition of 113,030 shares. The holding, valued at $31.45 million makes up more than 19% of the fund’s total portfolio.

Morgan Stanley’s top analyst Adam Jonas has just released an investor report suggesting that the bear case on Tesla has now improved. He says the bear case now suggests a $175 share price (up from just $50 previously) versus $511 on the bull case. According to Jonas, this is because of the company’s growing strategic value. Tesla investors see the company as one day becoming bigger than tech giants like Amazon. Jonas says for this to be achieved Tesla has to make some serious advancements on its Tesla Network mobility plans- for miles, data and content- something which Tesla has been quiet about for a while now. The opportunity in this arena for a very limited number of firms is highlighted by Morgan Stanley’s $70 billion potential valuation for Alphabet’s self-driving unit Waymo.

In the short/ medium term, Jonas believes the TSLA share price is well supported because its mostly dependent on the upcoming Model 3 electric vehicle. He says a successful launch could well send prices higher. Potential risks to Tesla include competition from big tech firms; protectionism and low margins in foreign markets; and the challenge of servicing vehicles rather than just selling them. On June 12, he reiterated his buy rating with a $305 price target (-20% downside). Jonas has a very impressive rating according to TipRanks where he is ranked #472 out of 4,574 analysts.

The stock has a hold analyst consensus rating with recommendations over the last three months fairly evenly split between buy, hold and sell. In terms of the average analyst price target, we can see that analysts are predicting on average downside of -22% from the current $380 share price. However, it is interesting to note that there is a very wide divergence in price targets from $464 on the high to $155 on the low.

NVIDIA Corporation

Zheng displayed a bearish attitude towards chip company Nvidia- slashing the firm’s holding by -64% to 259,820 shares worth over $28 million. The holding is still worth about 17% of the total portfolio.

Top Goldman Sachs analyst Toshiya Hari reiterated his Nvidia buy rating on June 14. Although NVDA is up 40% over the last year, Hari thinks the stock has further room to grown over the next 12 months with a bullish $171 price target (increased from $165 previously). Hari is more confident on the stock’s outlook because of increased estimates for Nintendo’s “Switch” video console, which incorporate Nvidia GPU chips. He now sees Nintendo selling 15.2 million units in the fiscal year ending March 2018 up from just 6.5 million units. Hari’s predicted EPS for Nvidia for this year is now $4.06 vs the $3.56 consensus.

On the more cautious side, five-star Oppenheimer analyst Rick Schafer reiterated his hold rating on Nvidia also on June 14. Following a meeting with management as part of their annual semiconductor bus tour, Schafer says he views Nvidia’s risk/ reward outlook as fairly balanced and that while he is optimistic on the stock’s long-term picture he would wait for a more attractive entry point.

In particular, Schafer said that management were bullish on Nvidia’s role in AI- the next big tech opportunity- as well as increased benefit from autonomous driving which should be visible from 2019. He noted that datacenter was a key topic of the meeting, with management focusing on the new Volta V100 accelerators on 12nm FinFET, which are capable of delivering 6 times the performance improvements over Nvidia’s Pascal GPU.

The stock has a moderate buy analyst consensus rating. In the last three months, Nvidia has received 13 buy, 8 hold and 2 sell ratings from analysts. Like with Tesla, analysts are predicting a downside from the current share price. Here the average analyst price target of $137.64 translates into an -8% downside from the $149.70 share price.

Alibaba Group Holding Ltd

Zheng ramped up the firm’s holding in Chinese e-commerce operator Alibaba by a whopping 81%. The holding of 92,000 shares is now worth close to $10 million- approximately 6% of the total portfolio.

Prior to the general tech stock correction, BABA was trading at record highs of $148 on June 9. And Pacific Crest analyst Hans Chung sees the stock reaching $160 in the next twelve months. The analyst raised his price target from $137 while reiterating his buy rating on June 9. Chung was encouraged an investor conference held by Alibaba where they revealed that they are anticipating incredible growth of 45%-49% for revenue for the fiscal year ending in March 2018. This comes in way above current analyst expectations of 37% revenue growth.

Chung believes Alibaba’s core business can continue to monetize in the long-term as the company revealed new marketing efforts for its featured businesses, new social features and personalized content opportunities. For its part, Alibaba referred to positive user growth and rising spending in China as supporting its core e-commerce work.

Alibaba has a strong buy analyst consensus rating with 14 buy and 2 hold ratings in the last three months. Analysts are also predicting considerable upside potential of 13% from the current $137 share price.


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