— “Ahead of the Street” Column, by Mitchell Clark, B. Comm.
For a speculator in equities, the single best market sector to consider right now is U.S.-listed Chinese stocks. I bet you knew this already. In spite of the politics, you just can’t find the same kind of attractive investment opportunities offering the same kind of growth rates. For traders and risk-capital speculators, this is the only place to be over the next 10 years.
Small- and mid-size Chinese companies are increasingly listing on U.S. stock exchanges because investment bankers can easily raise money for new financings, and because a U.S. stock listing helps legitimize a fast-growing start-up. You name the industry — whether it is alternative energy, fertilizer production, pharmaceuticals, industrial fasteners, IT services, or traffic surveillance…they’re all growing at a faster rate in China than just about anywhere else.
I think it’s fair to say that there are going to be a lot more new listings of Chinese companies over the coming quarters and, from my perspective, it will be worthwhile checking them all. The other important factor going for U.S.-listed Chinese stocks is that domestic investors (both institutional and individual) have a real appetite for these stories. Investor sentiment is ripe for this speculative sector of the market and, when the timing is right, small fortunes can be made in very short periods of time.
Consider China Agritech, Inc. (NASDAQ/CAGC), a fast-growing fertilizer company that is now one of Wall Street’s hottest stocks. This position went from under $5.00 a share in September last year to $30.00 per share in December. Then, just before 2009 ended, an institutional investor unleaded their position and the stock broke below $25.00 a share. After a small consolidation, the stock proceeded to accelerate tremendously again. The stock just hit a new record high of over $35.00 per share and the company is actually still reasonably valued.
So, there are great trades in the marketplace to be had, but you have to be watching and waiting for them to come to your attention. Determining a reasoned valuation for a fast-growing company like China Agritech is virtually impossible. The company seems to have excellent fundamentals, but how do you determine if it’s worth $20.00 a share, $10.00 a share or $50.00 a share? The fact is that you can’t. All it is when you look at it objectively is a great trade based on sentiment and momentum. This is exactly how speculators are going to be able to make money in 2010 — in U.S.-listed Chinese stocks. Two thousand and nine was already a great year for these securities and 2010 will be even better.