China (Still) Rising

By Eric Jackson
RealMoney Contributor
5/14/2010 7:32 AM EDT
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Despite all the worries about a China bubble, many of its U.S.-listed companies are posting real profits and boasting tremendous potential for growth.

Next week, I'll be attending a conference in New York put on by CCG Investor Relations featuring up-and-coming U.S.-listed Chinese companies.Oppenheimer & Co. is also running a China conference next week. As many in the media took notice of the fact that Shanghai's stock market entered "bear" territory early this week, it's important to revisit the outlook for these Chinese names.

First, let's talk about the Shanghai market, perhaps the most unusual in the world. You can't short stocks or trade futures (although the Chinese government has recently proposed changing this). I haven't seen any studies, but anecdotally, it is pretty clear this index has the lowest correlation with other world markets. Therefore, you have to take its movements with a grain of salt.

This year, the Shanghai Composite Index is down 17%, compared with a 5% gain for the S&P 500. Some market watchers have been worried about this being a leading indicator of a pending China crash, with the commodities that feed the country's booming demand about to fall off a cliff. In fact, my RealMoney colleague, Don Dion, wasout this morning with an article titled "Avoid China." Recall, however, that Shanghai surged 80% in 2009 vs. 27% for the S&P. This means that, since Jan. 1, 2009, Shanghai has climbed 46% vs. 32% for the S&P.

An investor also needs to keep in mind that U.S.-listed Chinese stocks trade in line with U.S. indexes -- not the Shanghai or Hong Kong exchanges. Why? Simply because they trade on U.S. exchanges, where the primary movers are U.S. investors. A good rule of thumb is that, if U.S. equities are rising, these China-based equities trading on the Amex, Nasdaq or OTC, are up some multiple of that. However, the same holds true in down markets. One reason is that these equities are smaller and less liquid. Sometimes, just a few retail investors dumping their holdings can drop a stock.

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2010 Outlook: One Quarter in the Books

By Eric Jackson
RealMoney Contributor
4/12/2010 12:01 PM EDT
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With the first quarter in the books, it's always illuminating -- and sometimes a little humbling -- to review prior predictions. At the end of last year, I made some stock picks and macro predictions. Here's how they've panned out so far.

Universal Travel Group (UTA - commentary -Trade Now)

I just met with this company on my recent trip to China and wrote about it last week. I still like it moving forward, as it is going after the packaged-tour market in China, and the country's domestic tourism business -- let alone the international one -- is set to boom over the next decade. Since I wrote about the stock in late December, it is down 4.7% vs. the S&P's 6.8% gain.

China Sky One Medical (CSKI - commentary- Trade Now)

A provider of nutritional supplements, including ones for traditional Chinese medicine, CSKI has dropped 27% since my pick. I've learned that the company doesn't have any Chinese-language version of its website. To a large extent, it exists only for the US investor market. I would avoid it moving forward.

China Agritech (CAGC - commentary - Trade Now)

The stock has been on a tear since I picked it -- up 94% this quarter. I like the company and its Chinese organic fertilizer business. I recently met with the company's COO. The problem is valuation -- it's a bit frothy right now. I would wait before getting in.

Puda Coal (PUDA - commentary - Trade Now)

I'm still a big believer in this coking-coal company, which is gaining ownership of more and more coal mines in the Shanxi province of China. The stock is up 77% since my suggestion and just got upgraded last week. There are still good times ahead.

Fuqi International (FUQI - commentary -Trade Now) The stock had a high-profile stumble when it delayed filing its 10K. News last week suggested the company would file it soon, which breathed new life into the stock. Still, it's down 29% since my recommendation. Assuming it cleans up its books, the stock is in a great space as a middle-market Chinese jeweler.

So, some hits and misses in this group. However, if you had taken an equally weighted position in all five stocks, the portfolio would have returned 22%, or triple the return of the S&P 500 over that period.

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China Trip: China Agritech

By Eric Jackson
RealMoney Contributor
3/29/2010 11:00 AM EDT
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Friday, I met with Steven Zhu, COO of fast-rising stock China Agritech (CAGC - commentary - Trade Now), a maker of organic fertilizers. The stock has been on a tear since last fall, rising from $4 in September to $27.36 last Friday. The company will be announcing its Q4 and full-year earnings this week. And while I walked away from the meeting feeling that this is a solid company, I would avoid holding the stock this week and wait to enter at a lower price.

Fertilizer companies around the globe have been on fire over the past half-year. Agrium(AGU - commentary - Trade Now) has been in a bidding war for CF Industries (CF -commentary - Trade Now), which was making a play -- and did so successfully -- for Terra(TRA - commentary - Trade Now). Agrium is up 45% in the past six months, while Terra is up 30%. Potash Corp (POT - commentary - Trade Now), another large integrated fertilizer company, is up 35% in the same period. In growing economies, these fertilizer companies have had a price advantage, selling to farmers looking to increase the yield of their arable land and maximize what they can sell to hungry and growing populations.

In China, these macro trends have been even more pronounced. The world's most populous country, with almost 1.5 billion people, has been experiencing a mini-boom, increasing demand for food. At the same time, arable land in China is scarce. With the larger cities continuing to increase in size and smaller conurbations growing to house the expanding population, farmers have had to make the most of the arable land available. China's annual fertilizer output reached 67 million tonnes last year, up 16% from the prior year. Most Chinese farmers are simple and are looking to buy the cheapest fertilizer possible to maximize their land's production.

Within the Chinese fertilizer space, organic fertilizers -- which China Agritech manufactures, along with competitors likeChina Green Agriculture (CGA - commentary- Trade Now) -- are a still a small segment, accounting for only 10% of the market. Such fertilizers increase yield while protecting the long-term health of the land compared with traditional fertilizers. They're more expensive, so they require a more sophisticated sales force to explain to farmers how they will be better off in the long run by using these fertilizers, even though they will cost more initially.

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What Hong Kong Tells Us About China

By Eric Jackson, Senior Contributor

03/24/10 - 06:00 AM EDT

Stock quotes in this article: UTA , ONP , PUDA , SHE , CWS , CAGC , CHBT , FUQI

HONG KONG (TheStreet) - I've spent the last couple of days in Hong Kong, the gateway to the Orient. Starting Thursday, I will embark on a 10-day trip in China meeting with different management teams from existing portfolio companies and prospective investments.

The companies include Universal Travel(UTA), Orient Paper(ONP),China Agritech(CAGC), Puda Coal(PUDA), Shengkai Innovations(SHE), China-Biotics(CHBT), China Wind Systems(CWS), and Fuqi International(FUQI).

The time in Hong Kong has opened my eyes to some of the dynamics going on in this city's economy and its relationship to mainland China, which are useful for any investor to keep in mind.

Hong Kong is booming at the moment. Recession? What recession? Any American looking to board a time machine and travel back to the glory days on 2006 should take the next flight to this city.

If you've grown weary about hearing the latest Case-Shiller data on housing and how foreclosures are about to start increasing again, you might find it jarring to walk around Hong Kong and read posters on real estate agency windows advertising dark and dirty 1,600 square- foot apartments going for $3 million to $4 million.

Everywhere you go, you see advertisements for some new extravagant condo building being built. People here like to demonstrate their prosperity, often by wearing high-end brands proudly. On a stroll last night through a prosperous section of Kowloon, I was startled to see a line to get into the biggest Louis Vuitton shop I've ever seen. Yes, there was a line of people waiting to get into a store so they could spend $10,000 to buy a bag.

I now understand why Vancouver and Toronto are experiencing mini-housing bubbles at the moment: People from Hong Kong are going up there to scoop up investment properties at a fraction of the price they would pay here.

This real estate boom is driven by the constricted supply of housing on the small island, the low marginal tax rate of 15% (how's that for a mortgage tax deduction?), and most importantly, newly wealthy mainland Chinese teeming over the border every day eager to spend their money in Hong Kong.

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Ask Your Questions for Chinese Growth Companies

I am going to be in China for 2 weeks at the end of this month to meet with management of several Chinese companies. I'm now working to confirm the final list of meetings, but it appears likely as though I'll meet with the majority of the following companies:

- Origin Agritech SEED

- China Agritech CAGC

- China Mass Media CMM

- China Wind Systems CWS

- Puda Coal PUDA

- FUQI FUQI

- Universal Travel UTA

- Shengkai Innovations SHE

If you have any specific questions, please send them along. If I ask, and they answer, I will post the responses once I get back.

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