By Zack Buckley and Glen Bradford
We believe that if you are planning on buying stocks by shooting fish in a barrel, the best barrel is U.S.-listed Chinese small-caps. Go get you're gun. It's been hunting season for more than a year. You really can't miss.
Sino Agro Foods
(SIAF.PK): "Chinese agriculture is another thing I think is going to boom because it's such a wreck," said Jim Rogers. I agree with Jim wholeheartedly, and Sino Agro Foods is one of the companies taking advantage of the boom in agriculture in China. Based on its 2010 guidance, the company is trading at a forward price-to-earnings ratio of 4, which gives the company a very attractive valuation if it's able to meet its guidance.
China Linen Textile Industry Ltd.
produces more than 50 types of linen yarn and 110 varieties of linen fabric and products. We would argue that it would produce significant profits for current holders of its common shares. For a company that is arguably growing faster than 20%, the current pricing suggests no growth, and the way to bet against the antagonists is to purchase. Go ahead, you can do it.
China Yongxin Pharmaceuticals
just recently released 2009 results of 15 cents a share, not bad for a company trading around 60 cents. This is a pharmaceutical company that is expanding its retail drug stores; it expects to open 28 new stores in 2010. It also just recently appointed four independent board members, which suggests an uplisting is in the company's future. Our favorite.
China Rutai International Holdings
develops cellulose ether and is trading at a P/E of less than 5. Cellulose ether is used in the pharmaceutical, construction, food and beverage, petroleum and cosmetics industries. If the company is able to sustain its numbers it's cheap.
China Advanced Construction Materials
produces concrete materials in China. The company should be able to capitalize on the growth of the construction industry in China, which is benefiting from recent infrastructure investments by the Chinese government. The company's expansion plans consist of adding portable stations in 2010 and 2011, acquiring smaller similar companies and adding new products.
is in the rapidly expanding auto industry and builds the body structures for commercial vehicles in China. It's trading at a P/E of 5 based on 2008 net income and is growing rapidly.
is one of the more speculative plays, but it could be very rewarding. It is an online insurance provider that services the Beijing area. It has great profit margins and high returns on equity. Our main issue is that we have been unable to get in touch with the company, despite trying several different phone numbers and emails.
China Power Equipment
(CPQQ.OB) is trading at a P/E of about 10, yet it's growing at breakneck rates. Net income over the past year almost tripled. It manufactures alloy transformer cores and alloy electricity transformers that are designed to step down voltages in power plants.
China Baicaotang Medicine
is engaged in three segments in Guangxi province: pharmaceutical distribution, retail pharmacy and pharmaceutical manufacturing. It is currently at a P/E of 6, despite solid growth. It just recently engaged Crocker Coulson to conduct its investor relations, a great sign that it will uplist in the future.
(YHGG.PK) has had quite the month. It's up almost 300% since it recently started making filings again with the
Securities and Exchange Commission
, which it hadn't done in about three years. Rumors are that it's planning on completing all of its late filings and eventually listing on Nasdaq. If that occurs, this $250 million dollar company could easily reach $1 billion. Again this is a more speculative company, so investors should carefully weigh their decision to invest in it.
At the time of publication Bradford was long all the companies mentioned. Buckley was long YaSheng, China Baicaotang Medicine, China INSOline, China Yongxin, Sino Agro Foods and Tongxin International.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Sino Agro Foods, China Linen Textile Industry, China Yongxin Pharmaceuticals, China Rutai, China Advanced Construction Materials, Tongxin International, China INSOline, China Power Equipment, China Baicaotang Medicine and YaSheng to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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.