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Message: chinese small caps for 2010
Chinese Small Caps For 2010
Posted: Jan 07, 2010 11:34 AM by Sham Gad
Filed Under: International Markets,Stock Analysis
As we look back on 2009, China again seems to be in Mr. Market's good graces. China's stock market was up nearly 80% as of early December and with expectations that growth will continue due to credit expansion by the government, 2010 may be another year of stellar performance. While such rapidly rising markets should be approached with a very high degree of caution and skepticism, there are a few Chinese companies that have quality fundamentals and will likely continue to execute in the year ahead. (For more, see Investing In China.)
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Secondly, despite how fundamentally sound and attractively valued certain stocks may be, should the overall Chinese market suffer a sharp or prolonged correction, expect share price declines in even the best of names. You don't have to go back too far in time - 2008 to be exact - to realize what can happen when a market crumbles after a hot run.
Finally, despite China's wonderful long-term growth story, you are investing in country where the state still makes all the important decisions. (For more, see Top 6 Factors That Drive Investment In China.)
Names To Watch
AgFeed Industries (Nasdaq:FEED) sells animal feed and is engaged in the acquisition of pig farms for pork production. China is the world's largest consumer of pork. The shares trade at $5.25 and based on earnings outlook for next year, at less than 9 times forward earnings. While the Chinese won't stop eating pork anytime soon, competition from poultry and beef is always a threat. If prices of those two proteins decline, they become a more attractive substitute for pork.
Yuhe International (Nasdaq:YUII) is one such competitor, as it is a producer of day old chicks ultimately used for poultry production.
American Oriental Bioengineering (NYSE:AOB) is a pharmaceutical company in China working on becoming one of the top five pharmaceutical companies in the country. Like many drug companies, AOB derives a bulk of its sales from a handful of products. If it can open up its pipeline to other potential blockbusters, this company is one to watch. On January 5, shares fetched $4.75 valuing the company at $374 million and 9.5 times earnings.
SORL Auto Parts (Nasdaq:SORL) manufactures auto parts primarily for commercial vehicles. The company is debt free, trades at 15 times earnings and recent profit growth is coming in at over 50%. Investors should note that when China's market cooled, these shares plunged. At the current valuation, these shares are not the stuff of value investors but they bear watching.
Hot or Not
China's phenomenal recovery continues to astound many and the consensus view is that equities have gone beyond rational expectations. Whether that's true or not, time will tell, but it's always a good idea to have some ideas close by. (For more, see Broadening The Borders Of Your Portfolio.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
By Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
Secondly, despite how fundamentally sound and attractively valued certain stocks may be, should the overall Chinese market suffer a sharp or prolonged correction, expect share price declines in even the best of names. You don't have to go back too far in time - 2008 to be exact - to realize what can happen when a market crumbles after a hot run.
Finally, despite China's wonderful long-term growth story, you are investing in country where the state still makes all the important decisions. (For more, see Top 6 Factors That Drive Investment In China.)
Names To Watch
AgFeed Industries (Nasdaq:FEED) sells animal feed and is engaged in the acquisition of pig farms for pork production. China is the world's largest consumer of pork. The shares trade at $5.25 and based on earnings outlook for next year, at less than 9 times forward earnings. While the Chinese won't stop eating pork anytime soon, competition from poultry and beef is always a threat. If prices of those two proteins decline, they become a more attractive substitute for pork.
Yuhe International (Nasdaq:YUII) is one such competitor, as it is a producer of day old chicks ultimately used for poultry production.
American Oriental Bioengineering (NYSE:AOB) is a pharmaceutical company in China working on becoming one of the top five pharmaceutical companies in the country. Like many drug companies, AOB derives a bulk of its sales from a handful of products. If it can open up its pipeline to other potential blockbusters, this company is one to watch. On January 5, shares fetched $4.75 valuing the company at $374 million and 9.5 times earnings.
SORL Auto Parts (Nasdaq:SORL) manufactures auto parts primarily for commercial vehicles. The company is debt free, trades at 15 times earnings and recent profit growth is coming in at over 50%. Investors should note that when China's market cooled, these shares plunged. At the current valuation, these shares are not the stuff of value investors but they bear watching.
Hot or Not
China's phenomenal recovery continues to astound many and the consensus view is that equities have gone beyond rational expectations. Whether that's true or not, time will tell, but it's always a good idea to have some ideas close by. (For more, see Broadening The Borders Of Your Portfolio.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
By Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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