Best Stock Market Gamble—Small-Cap Techs or U.S.-Listed Chinese Stocks?
Some of the most attractive opportunities right now in this stock market are in U.S.-listed Chinese stocks. If you like the buy low/sell high strategy, you have lots of choice among Chinese stocks—many of these companies are bouncing off their 52-week and all-time lows.
Of course, there’s a reason why so many Chinese stocks have been dumped on the stock market: business conditions worsened, and investors lost confidence in the entire group. Aside from the largest companies, institutional investors have abandoned smaller Chinese stocks. Naturally, this is a good place to be bottom-fishing in the stock market.
One company that I think is a standout turnaround opportunity is China Ceramics Co., Ltd. (NASDAQ/CCCL). This company makes ceramic tiles in China and sells them to the residential and commercial markets. Only about seven percent of the company’s products are exported overseas, and the company’s management recently signed a deal to become a strategic supplier to China’s largest real estate contractor. Here is China Ceramics’ stock chart:
Chart courtesy of www.StockCharts.com
On the stock market, China Ceramics has performed like most Chinese stocks—it’s been going down for the last two years, right along with the “engineered” slowdown in the Chinese real estate market. According to the company, its 2012 third-quarter revenues fell to $62.1 million, down from $63.4 million. Average selling prices, however, grew by 14%. Earnings in the third quarter of 2012 were $11.7 million, down from $11.8 million in the comparative quarter. Management previously forecasted a slowdown in business and a reduction in its backlog, which will result in a substantial decline in fourth-quarter revenues.
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Like a lot of Chinese stocks these days, China Ceramics recently bounced off its low; if you’re a speculator, this is a company worth keeping your eye on. Any acceleration in the Chinese real estate market will improve this company’s numbers. This is one of the Chinese stocks that looks “real” to me.
Another trend developing in the stock market is the strength in smaller, domestic technology stocks. I like a few large-cap technology stocks, Oracle Corporation (NASDAQ/ORCL) being one, but I also like several small-cap technology stocks with improving financial results.
One of these small-cap tech stocks is Support.com, Inc. (NASDAQ/SPRT). Based in Redwood City, CA, this small but growing company sells technology services to consumers and small businesses. These are products designed to help customers protect their computers, clean up installed software and hardware, and generally optimize personal computers and tablets. The company’s services are provided directly through its web site and through channel parts, like broadband service providers, retailers, and other technology companies. Support.com’s stock chart is below:
Chart courtesy of www.StockCharts.com
The company doesn’t report its fourth-quarter numbers until mid-February, and I am very much looking forward to the results. In its third quarter of 2012, Support.com’s revenues grew to $18.2 million from $12.4 million, with a slight net loss.
With so much carnage on the stock market among U.S.-listed Chinese stocks and a lack of confidence in their numbers, I’d be inclined to stick with domestic small-cap businesses for stock market speculating. The biggest turnaround potential is with Chinese stocks; but then again, so is the biggest risk.
Renewed strength in small-cap stocks is a big deal, as it shows that individuals and small businesses are spending on technology again. I think this trend has staying power; on the stock market, Support.com will jump if its numbers are decent.
There is still a great deal of uncertainty in the stock market today, and trading action is fragile. I don’t know how the stock market will end up this year, but we’ve had a great start. Chinese stocks are bouncing off their lows, but the group is very high-risk. My best guess is to sell in May and go away, as the saying goes. The fourth quarter of 2013 is just too far away.