2015's Top Performers: Timothy Lutts

01/04/2016 10:00 am EST


Timothy Lutts

Publisher, Cabot Heritage Corporation

Last January, we featured our annual Top Picks report, highlighting the favorite stocks from the leading newsletter advisors. Here, we talk with one of 2015's top performers, Timothy Lutts, editor of Cabot Stock of the Month. Last year, he selected a China-based small-cap that has since risen 53%.

Steven Halpern:  Joining us today is Timothy Lutts, editor of the Cabot Stock of the Month.  How are you doing today, Tim?

Timothy Lutts:  Great, Steve; always nice to talk to you.

Steven Halpern: Thanks for taking the time.  In the last year’s Top Picks report, you chose eHi Car Services (EHIC) as your favorite idea for 2015 and the stock has since risen about 53%. Can you tell our listeners what the company does and remind them about your original rationale for having chosen this company?

Timothy Lutts: Sure. eHi Car Services is the largest car service company in China and the number two car rental company in China. They’re tied into Enterprise and Ctrip (CTRP) so they have strong partners in the business. 

I think it’s a natural growth of the car rental service business. In China, it is the number one factor here and there is great potential. 

The reason I picked it last year:  It became public last November at $12 and then, by late December, had fallen down to the $8 area, which to me was a nice post IPO cool down and looked like a good entry point at the time. 

I like stocks that are under-known when I recommend them so it has a potential to become better known. I don’t like buying stocks that everyone knows about and so eHi has become better known in the year since and it’s growing very fast. 

This is another attraction.  When I wrote about it last year, it was growing revenues at 51% and 48% because of the two late quarters last year. This year, revenues have grown 53%, 61%, 70%, and 73%, so it’s accelerating growth which is very exciting to me. 

The stock is up 50-ish% as you said.  It’s cooled down actually.  It hit a high of $19 earlier this year; now it’s down to the $12s, and so I think that’s a significant point here. 

I would still call it a buy right here for the long-term investor. For those who own it, I would say take some profit here, but certainly hold some for the long-term.

Steven Halpern: Now, the Chinese market has seen both big ups and downs over the past year.  How dependent is eHi Car on the performance of China’s overall economy and of the stock market there? 

Timothy Lutts: Oh, very much dependent and it is a volatile stock as I said then and I will say again now. It’s lightly traded—average volume is only 237,000 shares a day—and so it bounces around. 

It did come down, as I said, as the stock market swooned in late summer, especially the market came up from $19 to the $8s, so ideally, you try to buy in pullbacks and you try to take advantage of push to highs when they come.

Steven Halpern: Now, looking out over the course of the new year, what do you see on the horizon for e-Car?

Timothy Lutts: Well, I’m happy to see that it’s becoming more recognized as a leader in the business. 

People know it as a stock now, trading volume is improving generally, and I assume growth will eventually stop accelerating and start decelerating a bit; you can’t accelerate forever, especially as you get bigger; but it’s still a small company. 

Still, looking at quarterly revenues of just $62 million in the latest quarter, so great growth potential as China grows and becomes more middle class. 

It’s still way behind developed countries as far as affordability of cars goes, so there’s much more potential going forward as the Chinese get-can afford cars more.

Steven Halpern: Now, as you mentioned, you still like the stock; so for somebody who may not own it yet, is this a time that they should buy or should they still be waiting for a pullback before initiating a position?

Timothy Lutts: I think buying here is great. It’s been stabilizing in the $12 to $13 area in the past couple months. Right now, it’s right on a 50-day moving average at $12.3 as we talk and I think that’s a good entry point.

Steven Halpern: Again, our guest is Timothy Lutts of Cabot’s Stock of the Month. Thank you for your time today. 

Timothy Lutts:  Thank you, Steve.

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