— by Mitchell Clark, B. Comm.
U.S.-listed Chinese stocks continue to be the greatest moneymakers in this market. If I could only speculate on two sectors of the equity market, it would be in commodity-related stocks (agriculture, gold and silver) and U.S.-listed Chinese stocks. It’s all high-risk stuff, but you know that going it.
Like most things in capital markets, perception is the reality that affects prices and investor sentiment is the determining factor in moving these speculative shares. A lot of fast-growing Chinese stocks are actually quite reasonably valued considering their profitability. I suppose this is the risk-premium associated with foreign investing.
Back in February, I wrote about China Sky One Medical, Inc. (NASDAQ/CSKI), which is a small company in China that owns a portfolio of pharmaceutical companies. Along with over-the-counter medicines, this firm also sells a lot of consumer-related products like vitamins and diet-related treatments.
This company just reported record first-quarter revenues that grew 100% to 24.8 million dollars. The company’s patch products, including its best-selling “Sumei Slim Patch” grew 141% to $9.1 million, accounting for over a third of total revenues. Earnings almost doubled, growing to $7.2 million, or $0.43 per diluted share, and the company finished the quarter with 49.0 million dollars in cash and without any debt.
China Sky One’s story is similar to a lot of other U.S.-listed Chinese stocks, in that sales are growing, earnings are substantial, and there’s little or zero debt to speak of. This is why these stocks can really move.
I’ve noticed that there’s a strong correlation to the trading action in U.S.-listed China stocks as a group. There’s also some correlation to the trading action in domestic Chinese equities. One thing’s for certain though; when institutional investors get behind the story, stock prices can really move quickly.
If you like to trade stocks, U.S.-listed China equities are the way to go. Because there’s been so much turmoil in stocks over the last year, there haven’t been a huge number of new listings on U.S. equity markets. I think this is going to change, as China’s stimulus spending accelerates their economy. I’m looking forward to a raft of interesting new companies to research and I’d bet money that there will be some great investment opportunities coming down the road.