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Bull of the Day: Weibo Corp. (WB)

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Weibo (WB - Free Report) , a Zacks Rank #1 (Strong Buy), has been a substantial beneficiary of the recent renewed strength in emerging market stocks. After succumbing to the bear market last year, Weibo has reversed course, more than doubling in price since bottoming in October. The stock has staged a new uptrend amid increased buying pressure, and the bullish move may be just getting underway.

Weibo is part of the Zacks Internet – Content industry group, which ranks in the top 39% out of more than 250 Zacks Ranked Industries. Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market.

By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success. This group has widely outperformed the market to kick off the new year:

Zacks Investment Research
Image Source: Zacks Investment Research

Also note the favorable metrics for this industry group below:

Zacks Investment Research

Zacks Investment Research
Image Source: Zacks Investment Research

Company Description

Weibo operates as a social media platform for people to create, distribute, and discover content in the People’s Republic of China. The company also offers advertising and marketing solutions, video/live streaming, copyright content development, and traffic support. The company was founded in 2009 and is headquartered in Beijing.

Over the past few years, there have been talks that Chinese firms would be delisted from U.S. stock exchanges due to a lack of transparency regarding Chinese accounting practices. But last year, American and Chinese regulators reached an agreement to allow accounting firms in China to share more information about the companies listed on U.S. exchanges. The agreement marked a turning point in resolving a major conflict that had originally pointed to a departure of China’s largest companies from domestic exchanges.

Emerging market valuations are very attractive. In particular, many Chinese companies (and their stocks) were hit hard due to extensive COVID-19 related measures, along with regulatory and technology crackdowns in recent years. This has created great value propositions, with many emerging market stocks becoming appealing once again. As China continues to lift lockdown restrictions and eases up on some of the more assertive regulations, Chinese equities should continue to perform well.

Earnings Trends and Future Estimates

WB has built up an impressive earnings history, surpassing earnings estimates in each of the past four quarters. The company has delivered a trailing four-quarter average earnings surprise of 4.71%.

While last year WB witnessed a decline in earnings, this year is a different story. Analysts covering the social media company have increased their full-year EPS estimates by +3.15% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $2.29/share, reflecting potential growth of 8.69% relative to last year.

Zacks Investment Research
Image Source: Zacks Investment Research

Let’s Get Technical

WB shares have advanced over 125% in the past year since bottoming in October. Only stocks that are in extremely powerful uptrends are able to make this type of price move and handily outperform the major indices. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Image Source: StockCharts

Notice how the 50-day moving average (blue line) is sloping up, and the stock is trading above both the 50-day and 200-day (red line) averages. WB has been making a series of higher highs on increasing volume. With both strong fundamentals and technicals, WB is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Weibo has recently witnessed positive revisions. As long as this trend remains intact (and WB continues to deliver earnings beats), the stock will likely continue its bullish run this year.

Despite the impressive performance, WB remains relatively undervalued, irrespective of the metric used:

Zacks Investment Research
Image Source: Zacks Investment Research

Bottom Line

Solid institutional buying should continue to provide a tailwind for the stock price. Strong momentum combined with renewed strength in emerging markets will likely translate into more upside for this current market leader.

Robust fundamentals combined with a powerful technical trend certainly justify adding shares to the mix. Backed by a leading industry group and robust history of earnings beats, it’s not difficult to see why this company is a compelling investment.

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