— by Mitchell Clark, B. Comm.
Back in May, I wrote in this column that the stock market still wanted to rally, but the strongest group in the marketplace would be Chinese stocks. U.S.-listed Chinese stocks remain one of the best wealth-creating groups available to speculative investors over the next several years.
Of course, a lot of these domestically traded stocks are now becoming fully valued. I do maintain my view that now is not a great time to be considering new positions. The good stocks have already gone up.
Case in point is a very interesting company called China Fire & Security Group, Inc. (NASDAQ/CFSG). I wrote about this company back in May. This firm is a great play on China’s infrastructure growth. Like the company’s name suggests, it designs and manufactures a variety of fire safety products for the industrial market in China. Headquartered in Beijing, with over 30 sales and project offices throughout China, the company markets its industrial fire safety products primarily to large companies in the iron, steel, power and petrochemical industries in China. China Fire & Security’s business plan is to expand its customer base to the transportation, wine and tobacco, shipping, nuclear energy, and government markets. Currently, the company has some 500 employees and 52 issued patents covering fire detection, system control and fire extinguishing technologies.
In its 2009 second quarter, China Fire & Security’s total revenues grew to 22.7 million dollars, up from 16.7 million dollars in the same quarter last year for a gain of approximately 36%.
Gross margin for the second quarter of 2009 grew to 63.8%, up from 61.2% in the same quarter last year due to more customers in the iron and steel industry. Net income grew to $8.3 million, representing an increase of 25% over last year.
One of the big reasons why this company continues to grow its
business is that the Chinese government is enacting new fire protection laws for industry. Along with that country’s current economic stimulus spending, China Fire & Security will soon cross the 100-million-dollar mark in annual sales. It will also do so with exceptional profitability. Current management expectations are for 2009 earnings of between 28.3 million dollars and 29.7 million dollars.
In May, I wrote, “large- and small-cap China stocks (I see) moving significantly higher in value on global stock markets. This trend is going to continue and it will be the source of significant wealth creation on a short-term basis.” This prediction has fortunately come to fruition and China Fire has since doubled in price on the stock market to its current record high of around $20.00 a share.
Unfortunately, the timing for big moneymaking has changed. The great stock market investment opportunities have now already gone up in value. The timing now isn’t good for new buyers. Now is the time to be preserving profits and trading around existing positions. The next great buying opportunity has yet to reveal itself.