How Watching for the Right Trade Could Pay Off Big-time

by Mitchell Clark, B. Comm.

There have been some spectacular turnaround stocks since the market was oversold in March. Many of these have been U.S.-listed Chinese stocks, but there have also been some excellent domestic stocks that have appreciated substantially in value.

I find it a very useful habit to study successful stocks, even if I don’t own them. The reason for this is that the process of studying a stock that’s done really well helps to solidify in your mind what a great opportunity for investment looks like. Try reviewing some major winners over the last couple of years and I guarantee that your stock-picking skills will get better.

One company that’s been a market darling over the last few weeks is Fuqi International, Inc. (NASDAQ/FUQI). I’ve followed this company for a long time and I can tell you that, when the timing is right, this stock can make loads of money.

This unappreciated micro-cap is a designer and wholesale distributor of jewelry in China. Based in Shenzhen, the company currently sells some 20,000 unique jewelry products and has a nationwide distribution network with Chinese retailers. The great aspect of this business is that it operates in both the wholesale and retail markets in China, which means that it can better control the supply and price of its products.

The last time I wrote about this business in this column was in November last year and the company had just reported numbers that blew away consensus estimates. With the marketplace gyrating on fear and uncertainty at that time, nobody was interested in a growth stock like Fuqi. I remember writing at that time that a growth company like Fuqi would one day pay off big-time — and that’s exactly what happened.

While the company was reporting excellent financial growth, the investing marketplace just wasn’t interested. It was a combination of weak investor sentiment in the broader market and a general aversion to more speculative issues like U.S.-listed Chinese stocks. Then, investor sentiment started to improve, especially in April of this year, but this stock still didn’t do much. Finally, the company reported excellent financial growth once again and, suddenly, the stock started to move.

Throughout most of April, Fuqi’s stock price traded in a tight range right around $5.00 per share. Then — bam! The company reported first-quarter sales growth of over 40%, with net income growth coming in at over 50%. Fuqi did what it had always done — the company reported great numbers. This was nothing new, but market sentiment had finally changed. The growth story was still intact and the stock rocketed to its recent new high of around $20.00 a share. That’s a 300% gain in just over a month.

What’s certain is that institutional investors and pro traders were watching the stock. They were watching and waiting for the timing to be right to jump back into this growth company.

What’s also certain is that this story illustrates that it takes courage to take on an equity position when market sentiment is weak. But only with that courage can you make the big money from the stock market. That’s why it pays to always be watching and waiting for the right trade to come across your desk. The best thing is that you don’t have to trade very much at all. All you have to do is have the patience to wait for only the best deals the marketplace has to offer. Fuqi is the perfect example of a great stock market opportunity that came and went with spectacular results. This stock proves that there are good investment opportunities in any market, but there are never very many of them. You just have to be watching and waiting to
jump on them when the timing is right.