Saturday, September 19, 2009

The Fast Boat to Chinese Stocks

For any of you interested in the Chinese stock market, here is some analysis on some small/micro cap Chinese stocks.

For the record, I prefer stocks with low P/E's (they MUST have positive earnings), low debt, reasonable profit margin, in a good industry with room for growth, with various other criteria depending on the industry (for example, if the company is in a competitive industry, I want to see them turning inventory fast).

My current holdings (in no particular order):
1. AMERICAN ORIENTAL BIOENGINEERING INC (AOB): Chinese pharma.
2. CHINA DIGITAL COMMUNICATIONS GROUP (CMTP): Lithium battery manufacturer. One of my personal favorite stocks which has already made me a lot of money.
3. CHINA SUN GROUP HIGH TECH COMPANY (CSGH): Another battery manufacturer. I am waiting for them to dip so I can buy more, but they never dip enough for me to do it.
4. CHINA INSONLINE CORP (CHIO): Online insurance sales. Trading in a tight range at the moment (between 90 cents and $1.10). Still cheap for the price. When it breaks out, it should break out big.
5. CHINA INFORMATION SECURITY TECHNOLOGY INC (CPBY): Security software development. As the Chinese Internet grows, they can only get richer. Considering they already have government contracts, this is a "money in the bank" stock.
6. CHINA YONGXIN PHARMACEUTICALS INC (CYXN): Chinese pharma.

Now for some other stocks reviews (again in no particular order):

1. China Clean Energy Inc (CCGY): A cash bleeder. I'm not sure there's enough there to allow them to grow, aside from an intriguing business plan. Unfortunately, I'm sure biodiesel is being researched by every oil company on the planet, since adding biodiesel to their current oil reserves is a no-brainer.

2. Puda Coal Inc (PUDZ): If you are looking for coal exposure in the Chinese market, this is a good stock for you. Personally, I am not fond of the coal market. Even so-called "clean" coal is worthless, since the energy output is vastly reduced. In other words, you have to burn more clean coal to get the same energy output you would get from regular coal, which means the clean aspect is negated. This means the future for the coal industry is limited, at best.

3. Telestone Technologies Corp (TSTC): Wireless communications equipment manufacturer. Sounds good, right? Unfortunately, they are only turning inventory a little over 2X, which is low for both the industry (20X) and the sector (13X). While they have little debt and a low P/E, they have to get more efficient in managing their business before I get interested.

4. Perfectenergy Intl Ltd (PFGY): Dead company walking. This company is bleeding cash BAD! Sure they have no debt, but they will need some soon at the rate they are going. SELL!

5. China Growth Development Inc (CGDI): A fascinating little stock. Through one subsidiary, they sell sun care products in Florida. Through another subsidiary, they build and operate commercial real estate in China. A strange combination admittedly, but they make it work. The numbers (from Vanguard):
Price: $0.40
P/E: 7.47
Current ratio: 0.83 (a little light)
Long-term debt to equity: 0
Total debt to equity: 0.16 (outstanding)
ROE: 6.37 (could be better)
Sales vs. 1 year ago quarter: 11.93% higher (good sign)
Price to book: 0.50 (say WHAT?! Amazingly low)
Net profit margin: 17.57% (sweet!)


Although I am not a fan of real estate exposure, commercial real estate would have to drop in China by half for this stock to be reasonably valued. For a 40 cent stock, this one is hugely undervalued. While growth potential is limited, it is definitely a "buy" at this price.

6. China Med Technologies Inc (CMED): This company specializes in in vitro technology. On the plus side, they make a lot of money, and they are growing (sales vs. 1 year ago have increased 92%). On the downside, they lose money overall because of their high debt (54% higher than their assets). If they could get their debt situation cleaned up, this could be a great stock to own. If heavy debt loads don't concern you, this is a solid "buy". But count me out.

7. Jiangbo Pharmaceuticals Inc (JGBO): My jaw hit the floor when I saw the financials on this one. This is the kind of stock where you ask, "Where have you been all my life?" Check out these numbers (from Vanguard):
Price: $10.83
P/E: 5.02
Current ratio: 4.12
Long-term debt to equity: 0.04
Total debt to equity: 0.10
ROE: 38.03 (over twice the ROE for the industry)
Sales vs. 1 year ago quarter: -8.45% (this stock's only downside)
EPS vs. 1 year ago quarter: 4,783.83% (translation: This company has improved their efficiency significantly)
Price to book: 0.99 (in other words, if they liquidated tomorrow, they would still be worth more than their current stock price)
Net profit margin: 24.36% (almost twice the margin for the industry)

Be still my beating heart! I think I am in financial lust.

8 comments:

William R. Barker said...

It goes without saying that I totally disagree with investing money in China.

China is NOT our friend.

Americans should invest their money in AMERICAN companies who produce goods and services in America by Americans. Of course there's nothing wrong with exporting our goods and services - in fact, I highly recommend doing so. (As long as we're not talking goods and services that will directly strengthen the PLA.)

Folks. Fellow friends of Ed. You need to understand. Ed would have gladly sold scrap metal to Imperial Japan during the 30's. Ed would have gladly sold "chemical" technology to the Nazis during the '30's. Ed couldn't care less if our potential enemies are strengthened as long as he can make a buck on the transaction.

Now does this make Ed a "bad" guy. Well... in a sense of course it does. But because I personally like Ed I prefer to see his shortsightedness as a sort of mental illness, a missing "patriotism gene" perhaps, rather than a deliberate inability to tell right from wrong.

And of course Ed can make the (BS in my opinion) case that only through trade can we "bring China over to our side."

Anyway, on this one Ed and I are at complete loggerheads.

BILL

Justine Nicholas Valinotti said...

William, if trade were indeed free and governments didn't interfere, we wouldn't have to worry about who our "enemies" are.

It's because we have an interventionist foreign policy and barriers to trade that we have people who want to destroy us. If we'd left the Middle East alone, all of those oil-rich countries would simply sell us the crude and not give us a thought otherwise on their way to the bank.

But because we prop up such as the Saudi Royal Family and the Northern Alliance, other countries will look to China and Russia for military and political support. Those countries are "enemies" only in the sense that countries that have grievances against our policies have aligned, and are aligning, themselves with the Chinese and Russians. They'd go to the North Koreans, too, if that country could feed itself.

William R. Barker said...

"William, if trade were indeed free..."

It's not. Nor will it ever be. Hell, even internally here in America government often "picks" pre-determined winners and losers via tax policy.

(*SHRUG*)

"It's because we have an interventionist foreign policy and barriers to trade that we have people who want to destroy us."

Agreed on the former, not on the latter.

(*SHRUG*)

Anyway... not quite sure if you're in accord with me on my original post or not.

(*GRIN*)

Hey... one postscript:

While Ed would indeed gladly sell our nation's enemies the means to challenge us militarily, Ed would also no doubt lay down his life to defend our nation if it came to that.

This is what's so frustrating about dealing with folks who believe as Ed does. As Jesus once said... "They know not what they do."

(*SMILE*)

BILL

EdMcGon said...

China is NOT our friend.

Bill, they aren't our enemy either. Sure, they have their own self-interested motivations for their actions. So do we.

China is not ruled by a megalomaniac, and is not going to "crush us". The difference between the U.S. and China is that China isn't only concerned about what happens inside their borders (although they certainly don't ignore it). If you look at their monetary policy, they are actually fairly shrewd.

Americans should invest their money in AMERICAN companies who produce goods and services in America by Americans.

And what happens when the American economy collapses? I can kiss my investment goodbye, but at least I'll be a patriot? That and a dollar will get me a cup of coffee (it used to be a quarter, but our inflated money supply has changed that).

Instead, I should invest in American products, made by...American union workers! Who donate millions of dollars to Democrats. That'll make America great...

Ed would have gladly sold scrap metal to Imperial Japan during the 30's. Ed would have gladly sold "chemical" technology to the Nazis during the '30's.

Strawman alert! The U.S. in the 30's wasn't nearly the world power it is today, especially with FDR trying every stupid idea in the progressive playbook.

Do you honestly think China would attempt a war with the U.S.? Only if they like to glow in the dark...

Ed couldn't care less if our potential enemies are strengthened as long as he can make a buck on the transaction.

Key word there: "potential". Frankly, I see no reason to fear China, and quite a few to respect them. If we had less of an adversarial relationship with them, do you still think North Korea would be a problem? Or Iran?

EdMcGon said...

If we'd left the Middle East alone, all of those oil-rich countries would simply sell us the crude and not give us a thought otherwise on their way to the bank.

Justine, with all due respect, I have to differ with you there. The history of the Middle East doesn't show that they were ever peaceful, even going back to before Mohammed.

As for the Israel situation, that only gave them a place to focus their normally warlike attitudes.

That said, I am not sure there is a correct solution. Do we withdraw and let the Arab countries attempt to slaughter the Israelis? Even if the Arabs lose, there will still be many deaths on both sides. If they win, we will have another Holocaust. And I shudder to think what the price of oil will become.

Which leads me to: It is in our best interest to support the Israelis. As long as the Arabs are focused on them, they aren't focused on each other. Occasionally, you'll get someone like Saddam Hussein who will happily slaughter Arabs too. But mostly they just moan and whine about how evil Israel is.

EdMcGon said...

It's not. Nor will it ever be. Hell, even internally here in America government often "picks" pre-determined winners and losers via tax policy.

Bill,
Translation: Since it hasn't happened, we shouldn't try to make it happen.

That's the American "can do" spirit! :P

While Ed would indeed gladly sell our nation's enemies the means to challenge us militarily

Which country is that? Even WE can't challenge ourselves! Nukes are nukes.

Ed would also no doubt lay down his life to defend our nation if it came to that.

I'd defend Georgia. I'd defend the South. There are even a few midwestern states worth defending. I'm just not sure the North is worth saving. It would be like laying down my life to defend Canada. It sounds like a silly thing to do.

Mind you, when Georgia secedes, you are always welcome down here. ;)

Justine Nicholas Valinotti said...

Ed: Don't you think that by focusing Arab wrath on Israel, we're putting ourselves in greater danger? After all, the demagogues of that area all portray Israel as a puppet of the US, which they are.

EdMcGon said...

Is that any more dangerous that if Saudi Arabia were at war with Egypt? How about Syria and Jordan?

Keep in mind, it was only about 20 years ago that Iraq attacked Iran.