China Growth: We Just Don’t Care
By Glen Bradford
Well, now, well, you know look. I’m not going to deviate here, I am not going to deviate. And even if this thing just blew away the numbers, I don’t care! I’ve got to be disciplined. Don’t trust anything in China. Sound familiar? I just wanted to cover a few stocks that I’ve been following that could blow away the numbers and nobody would notice. “If a tree falls in a forest and no one is around to hear it, does it make a sound?” I want to go on record and say that all of these stocks will independently trounce any market average or unleveraged ETF in the next 5 years. Diversify and multiply your portfolio. Also, put me on record predicting 100% average return in the next 12 months. My words of caution: don’t be afraid of making lots of money for being right.
China MediaExpress Holdings (NASDAQ: CCME) is blowing away earnings. My calculations put this at a 10-bagger if it ever gets fairly valued in the next 5 years. Also, I don’t see much downside risk. Traders are concerned that great news does not cause great price appreciation. Meanwhile, I’m ecstatic! Given the two times to buy at a certain price, before the great news or after the great news, I’ll take the sure bet: after the great news at the before news price. But, don’t forget about the consensus: “I don’t care. I don’t care if they just blew away numbers. I don’t care if I could make 1,000% in 5 years. I don’t care if it can grant up to 3 wishes, even if one of those wishes is a guarantee not to lose money.”
On June 1st, Skystar Bio-Pharmaceuticals (NASDAQ: SKBI) was at $8.71 at which point they filed to raise capital. Since then, the stock has fallen 25% and the company has withdrawn the registration statement at the end of June because the CEO believes that the price is too low to justify expanding at this price instead of operating cash flow. Finally, a CEO that gets it! And, the stock has done nothing since then. But, the consensus: “I don’t care! US Treasuries are the best. Why? Because they’re US Treasuries. Can you tell me how? Sure. I can put in my money and get it back.”
China Armco Metals (AMEX: CNAM) is a company that has been sinking 10-yard birdie puts and has fallen roughly 75% from 11 to 3. The CEO bought shares at $5. Institituional investors placed at $6.50. You can get it for $4. How’s that sound? But wait: “I don’t care! Gold is the best. Inflation is going to happen and gold will go up at least 10%. I don’t care if CNAM prints money and is backed in lines of credit. My eight year old likes gold.”
China Biotics (NASDAQ: CHBT) has only fallen since reporting 62% revenue growth and forecasting 50% growth into 2011. My put this at “hyperconservative.” If that’s not an understatement, I don’t really know what is. Chorus: “I don’t care! It doesn’t matter if they are growing at 50% and are cheap. I need expensive corporate debt now, please. Can you waive the transaction fees? Hello?”
Prevailing sentiment is just that. See where things are going and get there before they do. Sentiment will change to incorporate reality eventually. How long do hot models in the corner of a club go uncourted by single dudes? Not very long. How long will stocks from the fastest growing, sexiest economy in the world, China, remain undervalued and ignored on the US Stock exchange by profit motivated investors?
It’s funny to me when the cheapest companies in the world get cheaper. Nobody understood them to begin with. Why should more people understand them enough to buy them, now? A dirty secret of asset management these days is that the perceived to be “safest” investments are actually the riskiest. Risk comes from overpaying, and joining crowded trades is the best way to ensure this outcome and this is encouraged by the positive feedback loops of intermittent success of asset managers that are measured by immediate relative performance. More and more people are moving out of stocks into bonds, even US Treasuries. Inefficiency bothers some people, but I try to make the most of it. As I’ve always said: “Uncertainty will certainly work for me.”
Disclosure: Bradford and his investors are long China MediaExpress, Skystar- Biopharmaceuticals, China Armco and China Biotics.