— “Ahead of the Street” Column, by Mitchell Clark, B. Comm.
The hottest stocks in the U.S. equity market right now are Chinese fertilizer stocks, of which there is only a handful. The bandwagon effect has taken hold once again with this investment theme and it has significant staying power. Even domestic fertilizer producers are seeing renewed interest in their stocks. It’s all about the commodity price cycle moving into agricultural commodities, combined with a unique, cyclical demand imbalance that’s developing in fertilizer stockpiles.
Not too long ago in this column, I wrote about a conversation I had with a really experienced individual investor who buys and sells a lot of stocks. This person runs a diversified portfolio of both conservative, dividend-paying stocks for the long term and speculative securities in which he tries to achieve near-term capital gains. His investment strategy has changed recently, wherein his risk-capital equity trading has migrated almost entirely to Chinese stocks. For his conservative equities, he buys and holds big, brand-name U.S. companies that pay good dividends. If he makes it big on a speculative position, he allocates some of these profits to his speculative pool, but also adds to his more conservative investments.
His view is that, as an equity speculator seeking capital gains, there really isn’t much point in investing anywhere other than the fastest-growing market that’s readily available. In his view, Chinese companies that are listed on U.S. stock exchanges and trade in U.S. dollars offer the best bang for the risk-capital buck. His investment themes remain constant, but he expresses is speculative view on companies in the Chinese marketplace, because growth rates are higher and many companies are unusually profitable.
It’s quite evident that there’s been a surge of new investor interest in U.S.-listed Chinese stocks and you can see this in their huge price moves over the last few months. Chinese fertilizer stocks are the Street’s latest big speculative trade.
As a serious equity speculator, I would take the time to investigate every new Chinese stock that lists on U.S. stock exchanges. Investment risk is at a maximum, but this goes with the territory. The fact of the matter is that many of these businesses are generating excellent returns on their invested capital and the successful ones do tend to be unusually profitable, as compared to domestic companies. Investment capital always migrates to the most attractive opportunities in the marketplace. Now that the marketplace is global, you can expect interest in U.S.-listed Chinese stocks to increase significantly over the next few years.