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China's Mid-Caps Set for Earnings Season

Stocks in this article: NTESSINALONG

Mid-cap China stocks have historically been quite volatile during and after the earnings season. More often than not, these stocks have been driven by market sentiment that overrides underlying fundamentals .

Here we preview some of the more prominent China stocks that are due to report earnings and that we believe present opportunistic trading ideas for investors.

Our picks include Chinese Internet stocks , which despite a reasonable outlook, have witnessed selling pressure this month. NetEase.com (NTES), eLong (LONG) and Global Sources (GSOL) are expected to report earnings over the next two days. The stocks are currently trading at $32.15, $11.50, and $6.88, and were down 3.31%, 3.36%, and 5.23%, respectively on Monday.

China's Former Richest Man Goes to Slammer (Forbes)

There have been concerns over new regulations impacting online gaming firms in China. This, coupled with high investor expectations on new content releases, has led to a sharp correction in stock prices. However, we note that NetEase.com has one of the highest operating margins in the industry and the rumored partnership with Microsoft (MSFT) could help the company export its games to the U.S. and Europe.

Another Internet stock AsiaInfo Holdings (ASIA) went into a tailspin for apparently no fundamental reasons during and following its earnings announcement earlier this month. Subsequently, the stock recovered after Goldman Sachs upgraded the stock to a buy and added it to its Conviction Buy list with a $31 price target.

China's advertising major Focus Media Holding (FMCN), which reports on May 20, was down 5.29% to $15.74 on Monday. Following the recent sharp correction, we reckon the stock is undervalued. Advertising revenue is witnessing a revival across the world in conjunction with the economic recovery. Deutsche Bank recently issued an update on the stock maintaining its buy rating with a $19.36 price target.

Sina (SINA), the largest online portal in China, announced above consensus earnings Monday and issued an upbeat outlook. The company's shares were up 3.3% in after-market trades.

In the pharmaceutical space, Simcere Pharmaceutical (SCR) is due to report earnings Tuesday. After having corrected significantly over the past three months, the stock gained over the past couple of days following news reports of a potential sale of its over-the-counter drug division, which accounts for 10% of revenue. Chief Scientific Officer Peng Wang told mergermarket the company had hired Merrill Lynch as a financial advisor. The company is also seen as an attractive takeover target for global pharmaceutical giants, although Chief Financial Officer Frank Zhao denied the possibility of a total sellout, the Financial Times reports. The stock closed at $8.06, up 0.62% on Monday.

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