Making the Most of Selling Meds

by Mitchell Clark, B. Comm.

There’s a very interesting company that I’ve written about several times in this column. As you know, a lot of U.S.-listed Chinese stocks have been battered on the stock market over the last six months. Not only was this because of the forced liquidation of all stocks, but also because investors decided they didn’t want the associated higher risk of owning shares in foreign businesses.

This sentiment is slowly changing now and there are a lot of very attractively priced businesses out there that are still generating significant financial growth.

Back in November of last year and subsequently in the first two months of this year, I wrote about China Sky One Medical, Inc. (NASDAQ/CSKI). This fast-growing company owns a portfolio of pharmaceutical companies in China and its business plan is to become a leading industry player in the sale and distribution of over-the-counter pharmaceutical products in that country. Currently, China Sky One owns and operates Harbin Tian Di Ren Medical Science and Technology Company, Harbin First Bio-Engineering Company Limited, Heilongjiang Tianlong Pharmaceutical, and Peng Lai Jin Chuang Company Pharmaceutical Company.

As I’ve written many times, I continue to like pharmaceutical- related investments and, combined with exposure to the Chinese marketplace, I think you’ve got the best of both worlds.

People don’t stop spending on medicine when they get sick. They may cut back, but they don’t stop spending. In markets like China’s, pharmaceutical purchases are subsidized by government and this really helps the businesses and the consumers. There’s also a growing demand in that country for what I call “soft pharmaceuticals.” These are hygiene products, diet products, or personal grooming items that the growing middle-class demands. China Sky One Medical has an increasing number of these types of products and the company has stated that they can be extremely profitable. I like this multi-faceted business strategy. It’s the same thing that Johnson & Johnson does. JNJ will sell you your medicine and your shampoo as well.

China Sky One reports early this week and it expects its total 2008 revenues to be between eighty-eight million dollars and ninety million dollars. Net income is expected to be substantial, coming in between twenty-seven million dollars and twenty-eight million dollars. The company also expects its gross margin to improve going forward and its products for shedding weight to be a real growth driver, even in a slowing economy.

Investors are still skittish about investing in Chinese equities. Most investors, both individual and institutional, still opt to participate in China by investing in funds of ETFs. Chinese iShares have been really strong of late. Owning individual Chinese stocks can be a very risky affair and, at the end of the day, I think you have to approach these holdings as trades, not long-term investments. With this in mind, you just can’t find the same kind of growth domestically and you certainly can’t get the same amount of profitability. So, for the traders out there, the opportunities remain plentiful.