There has been much debate recently as to the future of the Chinese economy. Famous hedge fund manager Jim Chanos has publicly come out saying he will short the Chinese economy. While I believe the Chinese real estate market and domestic stock market are overvalued, I think the Chinese companies trading on the U.S. exchanges are screaming buys. Warren Buffett talked about feeling like "an oversexed man in a brothel" in the mid-1970' because he was so excited about the cheap prices in U.S. stocks. I feel the same about stocks in China right now. No one can predict market fluctuations; I just buy when stocks are trading at a huge discount to their intrinsic value. While I am not sure of the future in the markets in the next year or even two years, I am certain that these companies are exceptional buys for the long-term investor. As I discussed in my previous article, leaders in the pharmaceutical industry have a similar winning business model: a strong nationwide sales and distribution network, strong research and development capabilities and access to capital.
In China, we have companies with 30% or morer growth rates, and trading for P/E ratios of less than 8, while in the U.S. we have companies with 0% to 5% growth rates trading at P/E ratios of 13 to 16. The Chinese companies clearly present better value for the intelligent investor. There are a few reasons why this undervaluation happens. These companies are unknown to investors because they are in China. Investors also are afraid of Chinese stocks because of conflicting opinions about the future of the Chinese economy. This creates an incredible financial opportunity for those who do their research.
While I agree that the real estate market and domestic Chinese stock markets are overvalued, many of the Chinese companies trading on U.S. markets or OTC are extremely undervalued. Other companies in the Chinese pharmaceutical industry worth watching are China Kangtai Cactus Biotech ( CKGT), China Sky One Medical ( CSKI), Renhuang Pharmaceuticals ( RHGP) and China Pharma Holdings ( CPHI). This industry is exploding with undervalued companies. Please note that due to factors including low market capitalization and/or insufficient public float, we consider Skystar Pharmaceuticals, China Pharma Holdings and China Sky One Medical to be small-cap stocks. Market-cap information on the other stocks mentioned were not available. 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.