By Zack Buckley and Glen Bradford
We would like to make a distinction between these companies and previous companies we've mentioned because we are only long a few of the opportunities that we're discussing in this part of the series. That being said, most of these are still very undervalued companies or we wouldn't mention them. In general, we believe the previously mentioned companies are better opportunities. But, we'd love to reserve the right to be wrong. We often are.
Skypeople Fruit Juice
is a rapidly growing company with a price-to-earnings ratio of 8. It just recently uplisted to Amex, but despite its recent climb it still appears undervalued. For growth, Skypeople is expanding its capacity to 60,000 tons in 2010 from 30,000, promoting its proprietary brand Hedetang, and expanding its product offerings.
China Gerui Advanced Materials
is the largest manufacturer of high precision cold-rolled strip steel products in China. It is a market leader with a P/E of 7 and has been growing income rapidly. China's steel industry is growing at a compound annual growth rate of 18% and is continuing to grow as a result of huge government investments in infrastructure spending. To grow, China Gerui plans on doubling capacity to 500,000 tons by 2011 and adding different metals to its product.
is a leading producer of cork wood floor, wall and decorations. Its main competitive advantage is its raw material supply; it owns a cork forest. In addition, Asia Cork is currently trading at a P/E of 6.5. The management team has so far been very shy about displaying the company, but if this changes in the future Asia Cork will be rewarded by greater investor awareness through a higher stock price.
is a wireless communications solutions provider. It's exploding with almost 100% revenue growth in 2009 and 2010 expected growth of close to 50%. This company is trading at a P/E of only 12.5. Actually, it's currently around the low for the year. Tim Sykes suggested it as a potential short. If you have the ability to buy and hold until appreciation, this is one you'll appreciate to have in your portfolio.
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( FUQI) has been growing at a rapid pace and has an incredibly strong balance sheet with a cash balance of $173 million and a market cap of only $330 million. With a P/E slightly above 5 and exploding earnings, this is an interesting opportunity. Some downsides are that Fuqi has recently had some controversy when it restated earnings. We would like to see the company generate cash. Although Fuqi has blowout earnings, shareholders are yet to see positive cash flow.
China North East Petroleum
is engaged in the exploration and production of crude oil in Northern China. If you believe that China is hungry for energy and the next crisis could be related to the global oil production surplus going into a deficit, this is a practical way to capitalize. It's hard to say since we're waiting on a report that could send the share price skyrocketing. To do this, all China North East needs to do is offer non-GAAP guidance on a forward basis.
I've been following
China Redstone Group
since mid-February when I was forced to pass up a purchasing opportunity that has since returned over 100%. It launched under the ticker APBS and recently retickered. Fully diluted, my share count is 13.4 million and for fiscal I'm looking at top-line revenue of $36 million and net income of $15.8 million. Did you know that the death care industry has consistently ranked among the top 10 most profitable industries in China? You do now.
( SIHI) is involved in electronic sales although it doesn't modify the products in any way. It provides packing, warehousing, logistics, and import/export services. Sinohub currently trades at a P/E of just over 6. The company just released 2010 revenue guidance of $180 million, not bad for an expanding $85 million company. Not bad at all.
is a speculative play that will be very rewarding to shareholders if it is able to continue gaining construction contracts. Gold Horse is a construction company in Hohhot, the capital of Inner Mongolia trading at one-sixth of book value and four times earnings. The company has some recurring streams of revenue that should continue generating money for shareholders. Investors should be very careful as there was some question as to whether Gold Horse would go bankrupt, but recently it secured more construction contracts. We have tried endlessly to get in touch with the U.S.-based Chief Financial Officer Adam Wasserman and unfortunately are still waiting for a response.
China 3c Group
is primarily an asset and turnaround play. It's currently trading below its cash balance and at a fraction of revenue and book value. If China 3c was to liquidate tomorrow, the shareholders would all be sent a check in the mail. In order for shareholders to actually be rewarded, management must use its capital wisely. There are no guarantees that management will get the assets invested to generate more money or return those assets back to shareholders.
At the time of publication, Buckley was long Asia Cork, Gold Horse and Telestone. Bradford was long all the stocks mentioned.
Buckley will be spending three months this year in China visiting companies that are exciting investment opportunities. Follow him on his blog, Uncoveringalpha.com, as he travels across China touring factories and interviewing management.