That's why I'm here for the trip with my colleagues from Hong Kong and Shenzhen: We want to separate the real undiscovered gems from the names built on hype.
My top long pick of all the companies I met with is Orient Paper (ONP - commentary - Trade Now) which trades on the New York Stock Exchange. The company sells fine writing paper and corrugated paper for boxes, and three weeks ago it started production of paper for digital photographs. Earlier this week, Orient Paper released its full-year 2009 numbers. Revenue grew 57% to $102 million for the year and 98% for the fourth quarter to $31 million.
Investors did not like the decrease in gross margins from 22% to 18% in the recent quarter and the increase in SG&A expenses by over $1 million from last year. However, the margins were affected by increased coal costs in the fourth quarter that were due to the colder winter near Beijing. The company uplisted to the NYSE in December and was required to take on more consultant costs in preparing for that. It also announced yesterday that it was selling 3 million shares at $8.25, taking the stock down 13%. My firm was a big buyer on the news, and ONP is now one of our top long positions.