Blackmores Ltd [ASX:BKL] and Bellamy’s Australia Ltd [ASX:BAL] both climbed more than 5% this morning. Blackmores hit a high of $107.99, and Bellamy’s topped out at $4.04.
While Blackmores is up 3.35% year-to-date, Bellamy’s is still down more than 40% over the same period.
This morning, the Australia Financial Review reported that China had delayed their tough cross-border e-commerce tax indefinitely:
‘The surprising backdown by Beijing comes ahead of Chinese Premier Li Keqiang arriving in Australia on Wednesday for talks on upgrading the free trade agreement and how to eliminate other non-tariff barriers.
‘The indefinite delay is a big win for vitamin makers Blackmores and Swisse, which were facing complex new licensing and labelling requirements in China. The backdown should also benefit infant formula makers a2 Milk Company and Bellamy’s Australia, which have been hurt by uncertainty on how the new regulations would be implemented.’
Aussie goods via the cross-border e-commerce platform will now be classified as ‘personal’ rather than ‘common’ trade in China.
I wouldn’t rush out to buy Blackmores or Bellamy’s just yet. The decision to delay the cross-border e-commerce tax will likely increase sales. Yet, will it be enough to justify buying Blackmores and Bellamy’s at their current price?
China contributed around 7% to Blackmores’ total revenues in FY16, accounting for $48 million of sales. In the first half of FY17, revenues from China increased to $66 million, making up 19.86% of Blackmores’ total revenues.
It stands to reason that there is a big opportunity in China for Aussie products that the likes of Blackmores produce. But, to capture this growth, you might have to take a long-term view.
Blackmores is not likely to run up 100%, 200% or even 500% in the next year or two. But, over the next five to 10 years, the stock has a good chance of hitting these figures. As long as Blackmores can keep their profit margin and revenues growth from China in the double-digits, the stock could be a great long-term investment.
And what about Bellamy’s?
To me, the situation with Bellamy’s is completely different. Along with profit declines, the company has trouble with management and cannot reliably forecast demand, causing inventory pile up.
It can be a good idea to buy stocks when they are depressed. Yet, when the stock has a reason to fall, usually, it’s safer to monitor the stock from afar.
Junior Analyst, Money Morning
PS: It’s not always easy to find growth among billion-dollar stocks. Unless they can significantly increase earnings, you’d be lucky to get double-digit returns. That’s why some investors prefer the smaller end of the market.
Small-cap stocks are a riskier investment. There is no running away from it. But they can potentially grow earnings 10-fold in a short space of time.
Small-cap specialist Sam Volkering has been on the other end of small-caps running up 1,000% or more.
So far in 2017, Sam hasn’t recommended a losing stock yet. In his advisory service, Australian Small-Cap Investigator, his top three active investments are up 304.57%, 466.04% and 1,624.49%.
To find out more, click here.