By
Glen Bradford
Welcome to the 2nd part of a 5 part series that I’d like to call the “companies of life in China.” We are now entering childhood. At this point, I’d like to point out that this and all of my writings are intended to only be read by investors out there that are interested in not losing money. Mostly, I talk about things worth owning — and own them myself.
Put on your ear muffs. 35 years ago, Warren Buffett mentioned that he felt like an oversexed guy in a whorehouse. Ear muffs off. 3.5 months ago, I felt like a Toys ‘R Us kid left alone in the store after dark. Granted, Warren’s track record over the last 35 years is greater than mine over the past 3.5 months, but triple digit gains are undeniably “above average.” In the heat of March, I was offering to pay people if they gave me money and I lost it. I guess that’s what market bottoming makes someone like me feel like doing.
Instead of being boyishly optimistic and carefree, now I’m optimistically cautious. There are still a lot of things that could go wrong. There are multiple problems still floating in the air in Eastern Europe, not to mention the great potential for CMBS to crash the boards harder and longer than the Subprimes. That said, I still can’t control myself when I see opportunities that make me feel like I did when I opened my 12-year old Christmas present, a TYCO 6 wheeling remote control car that I proceeded to drive up and down the hotel hallways to my parents’ dismay and embarrassment.
- 1. I don’t wanna grow up, I’m a Toys ‘R Us kid. China Digital Communication Group (OTC:CHID) is unbearably cheap as it is, not to mention they just captured a Veteran Electronics CEO who founded a 3C electronic products manufacturing firm and grew it to hundreds of millions of dollars of revenues. China Digital, however, is trading at less than $10 Million dollars. Maybe I’m crazy, maybe I just love electronics right now after the sector got crushed this last Christmas season. From me to you, I think you are crazy if you miss this opportunity.
- 2. There’s a million toys at Toys ‘R Us that I can play with. The second company I’ll advise taking a look at is the one that I think may have the most upside in the long run, but is more of a gamble. China Clean Energy (OTC:CCGY) is in the biodiesel and specialty chemical products business. Rumors are that this company is increasing capacity to bring on $14M of net income annually. Not bad for a company at $10M.It’s less of a rumor now, as they just put up new pictures of their expansion plant in construction. A word of warning, look into potential tax problems that I have seen in the Fujian Province with Gushan (NYSE: GU).
- 3. From bikes to trains to video games at the biggest toy store there is. Somehow, we ended up in the electronics isle and it’s only suitable that I disclose my fully integrated information and entertainment service provider stock: MystarU.com (OTC: MYST). My estimate puts 2009E earnings at $10M plus or minus $5M. That said, my estimate could be hugely understated, as growth rates are in the triple digits. Did I mention their subsidiary Subaye.com is working with Google (NYSE: GOOG)? Nuff said.
- 4. I don’t wanna grow up cause if I did, I couldn’t be a Toys ‘R Us kid. To stick with the theme of electronics, because I don’t want to grow up, I present to you a company that has been laughed by investors down 40% since their last conference call, China 3C Group (OTC: CHCG). They just acquired their logistics company to increase efficiencies. They’ve been trying to uplist for over a year, getting unfairly punished by investors; and for $38M you can catch this company that made $26.8M last year.
Lastly, I did look into Toys ‘R Us. It’s owned by Vornado Realty Trust (VNO), which according to google has a P/E of over 1000. It comes with a *yield* of 8.5% and their P/E is actually around 10. I say *yield* because their dividend is not all cash anymore but shares of Vornado stock as well. I’m not confident in valuing Vornado (VNO), and I’ll leave it at that.
It has been said that when it comes to markets, markets are never wrong, opinions often are. I disagree. Markets can persist to incorrectly value companies for an incredibly long time and value. Give them enough time, and they still may be wrong. My opinion is that if you have a company that makes $10M carrying a price tag of less than $50M and has the growth potential to grow income to $100M, there is a lot of money to be made.
Glen and his investors own China Digital Communication Group, China Clean Energy, MystarU.com, and China 3C group.