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Welcome to Profit Confidential • Tuesday, May 22, 2012

I’m Excited About China Stocks

Thursday, February 22nd, 2007
By Mitchell Clark, B.Comm. for Profit Confidential

Are you keeping an eye on New Oriental Education (NYSE/EDU)? Can you believe that the stock is now trading around $45 per share? Just this past December, the stock was trading around $35 per share.

It’s truly amazing how institutional investors have rallied around China stocks listed on American exchanges.

According to Yahoo! Finance, New Oriental Education now trades with a P/E ratio of over 70. And this is for a company that isn’t that profitable and just sold another $330 million worth of shares to the marketplace. So how is this all happening?

The stock is going up because market psychology has triumphed over fundamental analysis. This is very important if you want to be a successful stock market speculator.

Investors know that they can’t properly value EDU because it is a Chinese company operating in a market that is unfamiliar. Frankly, the Chinese marketplace is really an unknown to most Western investors, although this doesn’t mean that they won’t put their money on the line!

People are buying EDU because it’s a good story and a good China play. Fundamental analysis of this security is secondary.

I’ll tell you right now that you can make more money from the stock market using investor psychology than you can crunching numbers. The key is that you have to be watching and looking for these kind of opportunities all the time, and you need a well- developed gut feeling about the broader investment community.

The good news is that you don’t need to be a rocket scientist to develop these qualities. You just have to work at it.

EDU is a great success story because everyone thinks that Chinese people want to learn English and pass entrance exams to go to college. The economies of scale are so large in China that virtually any well-established business can grow at least as fast as the general economy. At a minimum, this is in the low double digits.

Over the next five years, I’m certain we’ll see amazing financial opportunities to speculate in fast-growing China stocks that are listed on American stock exchanges. Frankly, I’m downright excited about the future, and you should be too.

 

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Profit Confidential AuthorMitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.

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