Two to Watch: 500.com and 21 Vianet

04/22/2014 10:00 am EST

Focus: STOCKS

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Our Emerging Markets Timer has turned negative; with the sellers taking control, it’s best to play some defense until the storm passes, suggests Paul Goodwin, editor of Cabot China & Emerging Markets Report.

There will be plenty of time for jumping back in when markets find their footing again. Meanwhile, building a watch list is a time-honored activity for periods when markets are inhospitable. And today, we’re going to add two stocks to our watch list.

500.com (WBAI) is the leading aggregator and processor of lottery purchase orders, essentially running a majority of the enormous lottery business for the China Sports Lottery Administration Center.

The company sold three billion yuan ($488 million) of sports lottery tickets to more than 200 million registered users in 2013, and it has been moving aggressively to increase its accessibility and popularity.

In January, the company announced a deal with China Mobile E-commerce, China Mobile’s equivalent of PayPal. China Mobile has the most mobile subscribers of any firm in the world, and this deal opens a new channel for lottery purchases via mobile devices.

WBAI is a very young stock, having come public just in November. We like the story and we will add it to our watch list for possible inclusion in the portfolio when the market gets moving in the right direction again.

21Vianet (VNET), a Beijing-based company that’s been in business just since 2009, provides carrier-neutral Internet data center services in China. The combination of hosting and connection services puts the company at the heart of the Chinese Internet.

21Vianet has been consistently profitable during its entire lifespan and it continues to grow as enterprise connectivity requirements in China increase.

One big plus for VNET is that the stock has been pretty much ignoring the recent weakness in the market—showing considerable volatility, but containing its ups and downs in a fairly tight trading channel.

We will put VNET on our watch list and will add it to the portfolio when market conditions become supportive again.

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