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Mid-Morning Market Update: Markets Edge Higher; Walmart Tops Q1 Views

Following the market opening Thursday, the Dow traded up 0.01 percent to 24,771.99 while the NASDAQ climbed 0.04 percent to 7,401.02. The S&P also rose, gaining 0.08 percent to 2,724.60.

Leading and Lagging Sectors

Thursday morning, the energy shares rose 0.76 percent. Meanwhile, top gainers in the sector included Seadrill Limited (NYSE: SDRL), up 59 percent, and EP Energy Corporation (NYSE: EPE) up 7 percent.

In trading on Thursday, information technology shares fell 0.36 percent.

Top Headline

Walmart Inc (NYSE: WMT) reported better-than-expected results for its first quarter.

Walmart said it earned $1.14 per share in the first quarter on revenue of $120.7 billion versus Wall Street's estimate of $1.13 per share on revenue of $120.51 billion.

Walmart U.S. comp sales rose 2.1 percent, comp traffic rose 0.8 percent. Comp sales at Sam's Club rose 3.8 percent on a traffic growth of 5.6 percent. Online sales also grew 33 percent in the quarter which marks a reversal from the prior quarter's disappointing performance in the prior quarter.

Equities Trading UP

Carver Bancorp, Inc. (NASDAQ: CARV) shares shot up 71 percent to $6.25.

Shares of Loxo Oncology, Inc. (NASDAQ: LOXO) got a boost, shooting up 22 percent to $170.37. The biopharmaceutical company that focuses on medicines for patients with genetically defined cancers said its oral presentation of LOXO-292 was selected for the "Best of ASCO" program.

World Wrestling Entertainment, Inc. (NYSE: WWE) shares were also up, gaining 16 percent to $50.75. The company's "Smackdown Live" may not be renewed at NBCUniversal network and the company's "Monday Night Raw" program could be worth three times its current value elsewhere, according to a report for The Hollywood Reporter.

Equities Trading DOWN

Jounce Therapeutics, Inc. (NASDAQ: JNCE) shares dropped 31 percent to $12.23. Abstract of the Phase 1/2 ICONIC trial that evaluated JTX-2011 monotherapy as well as in combination with nivolumab showed that the company has met its target enrolment in its combination cohorts across four solid tumor types, namely gastric cancer, triple-negative breast cancer, head and neck squamous cell cancer and non-small cell lung cancer.

Shares of J. C. Penney Company, Inc. (NYSE: JCP) were down 10 percent to $2.765 after the company reported downbeat Q1 results and lowered its FY2018 guidance.

Aircastle Limited (NYSE: AYR) was down, falling around 8 percent to $21.15 following announcement of 7.9 million share secondary offering.

Commodities

In commodity news, oil traded up 0.69 percent to $71.98 while gold traded down 0.18 percent to $1,289.20.

Silver traded up 0.64 percent Thursday to $16.475, while copper rose 0.28 to $3.079.
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Eurozone

European shares were higher today. The eurozone’s STOXX 600 gained 0.21 percent, the Spanish Ibex Index rose 0.67 percent, while Italy’s FTSE MIB Index rose 0.01 percent. Meanwhile the German DAX rose 0.28 percent, and the French CAC 40 climbed 0.45 percent while U.K. shares rose 0.24 percent.

Economics

Initial jobless claims increased 11,000 to 222,000 in the latest week. Economists were projecting claims to total 215,000 last week.

The Philadelphia Fed manufacturing index rose to 34.4 for May, compared to 23.3 in April. Economists expected a reading of 21.9.

The index of leading economic indicators rose 0.4 percent for April.

The Energy Information Administration’s weekly report on natural gas stocks in underground storage is schedule for release at 10:30 a.m. ET.

Minneapolis Federal Reserve President Neel Kashkari is set to speak at 10:45 a.m. ET.

Federal Reserve Bank of Dallas President Robert Kaplan will speak at 1:30 p.m. ET.

Data on money supply for the latest week will be released at 4:30 p.m. ET.

5 Stocks That Could Be the Next Amazon

Amazon.com, Inc. (NASDAQ:AMZN) has been one of the more impressive stocks of the past 25 years. In fact, AMZN now has returned nearly 100,000% from its IPO price of $18 ($1.50 adjusted for the company’s subsequent stock splits).

A large part of the returns have come from two factors. First, Amazon has vastly expanded its reach. What originally was just an online bookseller now has its hands in everything from cloud computing to online media to groceries. And its shadow is even larger. A potential entry by Amazon has rattled pharmacy stocks and medical distributors, among others.

Secondly, as a stock, AMZN has managed the feat of keeping a growth stock valuation for over two decades. I’ve long argued that investors can’t focus solely on the company’s high P/E ratio to value Amazon stock. But however wise an investor might the current multiple is, the market has assigned a substantial premium to AMZN stock for over 20 years now.

It’s an impressive combination — and one that’s likely impossible, or close, to duplicate. But these five stocks have the potential to at least replicate parts of the Amazon formula. All five have years, if not decades, of growth ahead. New market opportunities abound. And while I’m not predicting that any will rise 100,000% — or 1,000% — these five stocks do have the potential for impressive long-term gains.

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5 Stocks That Could Be the Next Amazon Stock: JD.com (JD) 5 Stocks That Could Be the Next Amazon Stock: JD.com (JD)Source: Daniel Cukier via Flickr

JD.com Inc(ADR) (NASDAQ:JD) is the company closest to following Amazon’s model. While rival Alibaba Group Holdings Ltd (NYSE:BABA) gets most of the attention, it’s JD.com that truly should be called the “Amazon of China,” as Will Healy pointed out in December.

Like Amazon (and unlike Alibaba), JD.com holds inventory and is investing in a cutting-edge supply chain. It, too, is expanding into grocery, like Amazon did with its acquisition of Whole Foods Market. A partnership with Walmart Inc (NYSE:WMT) should further help its off-line ambitions. JD.com even is cautiously entering the finance industry.

That ability to both provide best-in-class logistics and satisfy a wide range of customer needs is what has made Amazon a success. And while JD may not rise to the scale of Amazon, at its current valuation it doesn’t have to. After a recent pullback, JD trades at less than 26x forward EPS. That’s despite 40% revenue growth in 2017, and expectations for a 30% increase in 2018.

And it sets up a scenario where JD stock could — if sentiment finally turns in its favor for good — appreciate for years, thanks to both strong bottom-line growth and an expanding multiple from optimistic investors.

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5 Stocks That Could Be the Next Amazon Stock: Square (SQ) 5 Stocks That Could Be the Next Amazon Stock: Square (SQ)Source: Chris Harrison via Flickr (Modified)

Admittedly, I personally am not the biggest fan of Square Inc (NYSE:SQ) stock. I like Square as a company, but I’ve questioned just how much growth is priced into SQ already.

Of course, skeptics have done little to dent the steady rise in AMZN stock. And valuation aside, there’s a clear case for Square to follow an Amazon-like expansion of its business. Back in January, Instinet analyst Dan Dolev compared SQ to AMZN and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), citing its ability to expand from its current payment-processing base:

In 10 years, Square is likely to be a very different company helped by accelerating share gains from payment peers and relentless disruption of services like payroll and human resources.

Just as Amazon used books to expand into e-commerce, and then e-commerce to expand into other areas, Square can do the same with its payment business. The small business space is ripe for disruption, as Dolev points out. Integrating payments into payroll, HR, and other offerings would dramatically expand Square’s addressable market – and lead to a potential decade or more of exceptional growth.

Again, I do question whether that growth is priced in, with SQ trading at ~about 12x the company’s 2018 guidance for “adjusted” revenue. But if — again, like AMZN — Square stock can combine a high multiple with consistent, impressive, expansion, it has the path to create substantial value for shareholders over the next five to 10 years.

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5 Stocks That Could Be the Next Amazon Stock: Shopify (SHOP) 5 Stocks That Could Be the Next Amazon Stock: Shopify (SHOP)Source: Shopify via Flickr

E-commerce provider Shopify Inc (NYSE:SHOP) probably doesn’t have quite the same opportunity for expansion as Square. And it too has a hefty valuation, along with a continuing bear raid from short seller Citron Research.

But I’ve remained bullish on SHOP stock — and here, too, a recent pullback presents a buying opportunity. Shopify is dominant in its market of offering turnkey e-commerce services to small businesses. That’s exactly where consumer preferences are headed: small and unique over large and bland. And because of offerings like Shopify (and Amazon Web Services), those small to mid-sized businesses can compete with the giants.

Meanwhile, Shopify does have the potential to expand its reach. Just 29% of revenue comes from overseas, a proportion that should grow over time. It’s moving toward capturing larger customers as well through its “Plus” program, picking up Ford Motor Company (NYSE:F) as one key client. The development of an ecosystem for suppliers and the addition of new technologies (like virtual reality) give Shopify the ability to offer more value to customers — and to take more revenue for itself.

Like SQ, SHOP is dearly priced. But both companies have an opportunity to grow into their valuations. And given long runways for Shopify’s adjacent markets, it should keep a high multiple for some to come. As a stock, if not quite as a company, SHOP has a real chance to follow the AMZN formula for long-term upside.

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5 Stocks That Could Be the Next Amazon Stock: Roku (ROKU) 5 Stocks That Could Be the Next Amazon Stock: Roku (ROKU)Source: Shutterstock

Roku Inc (NASDAQ:ROKU) might have the best chance of any company in the U.S. market to follow Amazon’s strategic playbook. The ROKU stock price is a concern: I wasn’t thrilled about the price after a huge post-earnings gain back in November, and even near a five-month low ROKU isn’t close to cheap.

But — perhaps even moreso than Square — Roku now isn’t what Roku is going to be in ten years. The hardware business is a loss leader, but one that allows Roku to serve as the gateway to content for millions of customers. As the company pointed out after Q4 earnings, it’s already the third-largest distributor of content in the U.S. The Roku Channel is seeing increasing viewership. The company offers pinpoint targeting of advertisements — without the messy data problems afflicting Facebook, Inc. (NASDAQ:FB).

Roku is becoming increasingly embedded in TVs, though a deal between Amazon and Best Buy Co (NYSE:BBY) raised some fears about those software efforts going forward. It has a plan to roll out home entertainment offerings like speakers and soundbars, creating a long-sought integrated experience. It could even, as it grows, look to develop or acquire content itself, positioning Roku not as just a conduit to Netflix, Inc. (NASDAQ:NFLX) but a rival.

The bull case for Roku stock is that its players are like Amazon’s books — a way to garner customers and get a foot in the door of the exceedingly valuable media business. What Roku does now that it has entered will determine the fact of ROKU stock. But the amount of options and a reasonable valuation (Roku’s market cap is barely $3 billion) mean that betting on its strategy could be a lucrative play.

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5 Stocks That Could Be the Next Amazon Stock: Nvidia NVIDIA Corporation Stock (NVDA) Won't Stay Down Long After Shocking Analysts Source: Shutterstock

In the context of the stocks chosen here, Nvidia Corporation (NASDAQ:NVDA) doesn’t seem particularly expensive. But in the context of the traditionally cyclical — and low-multiple — semiconductor space, a ~34x multiple to 2018 consensus EPS estimates, even backing out net cash, is awfully pricy.

And with NVDA up a whopping 1,550% in just the past five years, investors would be forgiven for thinking the run might come to an end. Indeed, NVDA stock hasn’t really moved over the past four-plus months.

But the huge amount of secular tailwinds behind Nvidia suggest that the company should be able to drive torrid growth for years to come – and to maintain a multiple that looks rather high on a historical basis. The company’s automotive business gets a fair amount of press, given its potential applications to autonomous driving. But that growth likely won’t come in earnest until the next decade.

It’s the datacenter business that looks most appealing in the near term. Revenue in that category more than doubled in 2017. Thanks to cloud providers like AWS, demand should continue for years to come. And with Nvidia taking share from Intel Corporation (NASDAQ:INTC), its growth should be even better than that of the market. High-end gaming demand should rise, and virtual reality will add another tailwind there.

Unlike, say, Roku (or early-days Amazon), Nvidia’s growth opportunities are mostly known. But at $223, even with a high multiple, they’re not fully priced in. I still see an easy path to $250 for NVDA in the near term. Longer-term, its presence (if not outright dominance) of key markets should lead Nvidia stock to double, at least.

As of this writing, Vince Martin has no positions in any sec

Slowly But Surely, Alibaba Group Holding Ltd Will Feel the Burden of Being a Powerhouse

Over the course of the past few months, at separate times, I’ve argued that sooner or later, time and competition are going to catch up with Amazon.com, Inc. (NASDAQ:AMZN). Though its ever-increasing size allows it to reach deeper into consumers’ pockets in more ways, each of a company’s moving parts makes the whole machine more prone to failure.

It’s a warning that also needs to be passed along to Alibaba Group Holding Ltd (NYSE:BABA) shareholders, particularly in light of some recent developments from its top competitors.

It may not matter right now, or even a few months from now, but other e-commerce and internet companies — frustrated with Alibaba’s dominance — are finally starting to find ways to beat Alibaba at its own game.

Partnerships Are the Key

How does the old saying go? Eventually, every contest becomes a two-horse race?

It’s not a universally true, immutable axiom. There is quite a bit of credibility to the idea, though. The Coca-Cola Co (NYSE:KO) and PepsiCo, Inc. (NASDAQ:PEP) were for all intents and purposes the only relevant soda players when soda was their core product. All other players were either acquired or obliterated.

The same idea more or less applies to AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ), which dominate the United States’ telecom scene, leaving the rest of the industry fighting for leftovers and scraps.

Times have changed a bit, though. Now, an outright merger or acquisition is less likely than a formidable partnership intended to take aim at the dominant player in an industry.

Enter SINA Corp (NASDAQ:SINA) and JD.Com Inc (ADR) (NASDAQ:JD). The former operates one of China’s search engines, and the latter is of course China’s second-biggest e-commerce outfit.

The two have teamed up to share information that will ultimately give both parties greater insight about consumer behaviors. Not that Alibaba isn’t armed with plenty of consumer behavior data of its own, but it’s a direct jab at China’s e-commerce powerhouse.

Were it the only team-up of its ilk, it might be able to be dismissed. It’s hardly the only one, though.

Case(s) in point? Late last year, Chinese gaming and app outfit Tencent Holding/ADR (OTCMKTS:TCEHY) partnered up with JD.com and purchased a stake in China’s third-largest e-commerce platform, Vipshop Holdings Ltd – ADR (NYSE:VIPS).

Early this year, JD partnered with Meili in a move that’s intended to woo female shoppers away from Alibaba’s Tmall.

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Then just this month, JD.com made a pitch to European makers of luxury goods, saying it could do a better job of keeping counterfeit goods in check than Alibaba has. And, maybe it can. If nothing else, the sheer size of Alibaba’s Tmall makes it difficult to keep close tabs on every listed item.

These recent developments are, more importantly, a microcosm of the competitive thinking and partnering being done almost exclusively to slow Alibaba down. When the whole world is gunning for you specifically, enough shots will eventually hit the target to create trouble.

To that end, know that Alibaba won’t be stifled by one sweeping blow. It will be nagged into submission by all the nickels and dimes it has to spend to remain the beast it’s become.

Bottom Line for BABA Stock

Don’t read too much into the warning, if you’re asking yourself, “Should I buy Alibaba stock today?” Though it’s something that may adversely impact the Alibaba stock price in 10 years, it’s not going to matter much over the course of the next 10 days, or even the next 10 months. Much can happen in the meantime, and the Alibaba story is still a good one.

You can never afford to assume an organization is perpetually invulnerable, though. Just ask the Eastman Kodak Company (NYSE:KODK) or Xerox Corp (NYSE:XRX), neither of which saw the winds of change blowing in time to do anything about it.

That’s not to suggest any headwind Alibaba could meet will be as dramatic as the plunge into obsolescence that Xerox and Kodak suffered. It is to say, though, that investors need to be very careful about making assumptions. BABA isn’t necessarily the bulletproof name some believe it is.

And for what it’s worth, it’s not like Amazon doesn’t continue to face more and more seemingly innocuous threats as well.

Take for instance how Walmart Inc (NYSE:WMT) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) got together late last year to develop a voice-activated shopping app for Google’s smart speaker.

Neither company was theoretically the best partner for the other to cocreate the platform. In both cases, Amazon itself was arguably the more potent partner. But neither company feels like continuing to feed its competition. BABA is in that same boat as Amazon.

It’s a small step to be sure, but enough small steps can add up over time.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at

8 Biggest Dow Losers So Far in 2018

Over the course of the past week’s five trading sessions, the Dow Jones industrial average dropped more than 1,400 points, the biggest weekly percentage loss in more than two years. Eight Dow component stocks are down at least 10% for the year to date and only six have been able to show a gain so far in 2018.

No one will be shocked to read that General Electric Co. (NYSE: GE) is the worst-performing Dow stock of 2018, down 25.1% as of Friday. The stock posted a new 52-week low Friday at $13.02. As the share price declines, investors worry more about the viability of GE’s dividend payments. At yesterday’s close the dividend yield is 3.41%. For the prior 12 months, GE shares have lost nearly 56% of their value.

Procter & Gamble Co. (NYSE: PG) has seen its share price drop by 17.38% to date in 2018. Shares lost nearly 4% last week and set a new 52-week low of $75.81 on Friday. The stock has long been a favorite defensive holding, and of the eight stocks on this list, its weekly loss was the second smallest. The stock’s dividend yield is 3.52%, and shares are down 16.4% for the past 12 months.

Walmart Inc. (NYSE: WMT) dropped 4.21% last week and shares are down 13.5% for the year to date. The company has been waging anear-life and death battle with Amazon that is both costly and only a moderate success. Walmart’s dividend yield at Friday’s close was 2.39%, and shares still trade up by over 22% over the past 12 months.

Exxon Mobil Corp. (NYSE: XOM) closed Friday down 12.85% for the year to date and down just under 3% for the week. That was the smallest weekly loss of any of the stocks on this list. Exxon was buoyed by last week’s5.6% boost to crude oil prices. The stock’s dividend yield was 4.14% at Friday’s close, and shares are down about 11% over the past 12 months.

Verizon Communications Inc. (NYSE: VZ) has lost about 12.5% of its value since the beginning of the year. Last week’s dip of 4.67% didn’t help, but Verizon did manage to avoid setting a new annual low during the week. The company’s 5% dividend yield helps keep investors in the fold, and some encouraging words about Verizon’s 5G technology also helped moderate losses last week. The stock is still underperforming for the past 12 months, however, down 6.75%.

DowDuPont Inc. (NYSE: DWDP) has posted a year-to-date drop of about 11.5% after losing 7.2% of its value last week. Like Verizon, the industrial firm managed to avoid posting a new low last week, and the stock price is flat over the past 12 months. DowDuPont’s dividend yield was 2.32% at Friday’s close.

Johnson & Johnson (NYSE: JNJ) dropped 6.42% last week to bring its year-to-date loss to 10.5%. Like P&G, this is another defensive stock that investors hold onto for its long history of dividend performance. At Friday’s closing price, the dividend yield for J&J is 2.64%, hardly a dazzler, but an amount that is a virtual lock to be paid. For the past 12 months, its shares have lost just 0.6%.

McDonald’s Corp. (NYSE: MCD) makes this list because its stock is down 9.96% for the year, close enough to 10% for us. Shares lost 4.55% last week, but has still has added just over 20% to its share price during the past 12 months. Not quite as sure a defensive play as P&G or J&J, McDonald’s pays a dividend yield of 2.55% and remains a favorite among some analysts.

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These Are the Only Dow Stocks Up for the Year

Now's The Time To Buy The Amazon Of China

The Russell 2000 had a good year — all things considered. The index has gained 13.7% in 2017 compared to a 19.6% return for the broader S&P 500 index. Both indices are charted in the graph below.

But something doesn’t pass the smell test. While both indices have solid gains for the year, it’s interesting to note that most of the Russell 2000’s gains occurred since August 21, 2017, when the index closed at 1356.90. That means that more than 77% of the year’s gains have occurred in just the past 120 days. This is likely a result of an influx of retail investors.

While that in and of itself isn’t too troubling, there’s something ominous about the valuation of the small-cap market index of the bottom 2,000 stocks in the Russell 3000 Index. You see, at its current value of roughly 1545, the stocks of the Russell 2000 have a combined value of approximately $4.5 trillion.

What’s so ominous about that? Well, the net income from these 2000 stocks is just $42 billion, meaning the Russell 2000 is priced at more than 107 times earnings. It doesn’t matter how you look at the markets today, but any index priced at such ridiculous levels is in dangerous territory.

This is why investors looking for portfolio growth should consider the Chinese equivalent of the American company Amazon.com (Nasdaq: AMZN). Of course, that company is JD.com (Nasdaq: JD).

Now, the stock has been on a relative tear of late, rising more than 62% in 2017 alone. But don’t let that scare you away. Consensus estimates for EPS growth portend strong tailwinds starting the first quarter of 2018, which should boost the stock to new highs.

Here’s why…

Much like Amazon, JD.com has invested heavily in its infrastructure. And this high capex spending has hurt its earnings over the years. But the result is that the company actually owns the inventory for sale on its websites — unlike Chinese giant Alibaba Group (NYSE: BABA).

The company has also mimicked Amazon by creating a warehouse and logistics network that no other competitor can come close to touching. The following chart of the company’s logistics network comes from its investor presentation for third-quarter 2017.

The good news is that its spending is really starting to produce results. Another chart from the company’s investor presentation shows the company has grown its customer accounts by 808% since 2012 to more than 266.3 million (about 82% of the U.S. population). At the same time, the average number of purchases has grown by nearly 595%.

But an even more important reason for my bullishness on JD.com is the continuing growth in the Chinese middle class. You see, according to a study by consulting firm McKinsey & Company, 76 percent of China’s urban population will be considered middle class by 2022. That means 630 million Chinese (twice the population of the United States) will be in the middle class, or 45% of the entire Chinese population. And that doesn’t include an additional 9% of the nation that will be considered affluent by Chinese standards.

This has propelled JD.com to forge symbiotic relationships with other companies, such as Tencent (OTC: TCEHY). The Tencent deal opened up access to popular apps like WeChat and Mobile QQ messaging. The relationship is so strong the company reports that 25% of its first-time users come from these apps. And JD.com proactively committed Tencent to a non-compete agreement through 2022.

But Tencent isn’t the company’s only major relationship. JD.com recently acquired the online Chinese grocery business of Wal-Mart (NYSE: WMT). The deal to acquire Yihaodian gave Wal-Mart a 5% stake in JD.com, which has since grown to 10.1%. There is an 8-year non-compete agreement in place against Wal-Mart that doesn’t expire until 2024 — giving JD.com plenty of time to secure its dominant position in China.

The Wal-Mart collaboration is unique to both companies. Under its current terms, whenever an order comes into JD.com, couriers receive instructions to fill the order at the closest JD warehouse or Wal-Mart store. That’s like leveraging another 424 warehouses for JD.com.

This makes JD.com the largest fulfillment center in China. Better yet, the 424 Wal-Mart stores, in combination with JD.com’s existing 256 warehouses in 54 cities, now make 99% of China accessible to the company.

Best of all, these relationships are producing results. JD.com delivered year-over-year revenue growth of 43% — almost twice the growth of Amazon.com. Better yet, it’s not all top-line growth, either. The graph below illustrates the trailing twelve months growth in cash from operations.

The Bottom Line
JD.com is the dominant player in the world’s second largest economy. Its business plan promises to provide a tailwind for years to come, and given the outrageous multiple at which the Russell 2000 currently trades, JD.com is infinitely safer for your portfolio.

Risks To Consider: There are dangers associated with investing in China. A great many companies are state-owned enterprises, meaning it’s possible for foreign investors to find themselves relegated to a subordinated priority behind the government. In addition, corporate governance is still a commonplace problem in China — company accounts are often incomplete or incorrect.

Action To Take: Buy shares of JD.com up to $45 a share. Mitigate risk by using no more than 3% of your portfolio to the stock. Use a 20% trailing stop to protect your capital. Expect to hold your position for at least three years.

Editor’s Note: Introducing our 13 investment predictions for triple-digit returns in 2018. Our previous predictions have delivered returns of 310%, 452% and 569%. This year’s predictions could be our best yet. Get them all here, free.