There are a lot of approaches that are going to work in a time like this. Ron Insana is right with his strategy of cutting the defensive plays and going on the offensive with a shotgun approach targeting bottom of the barrel giants. Cramer is right on China.
Resolved: the easiest way to become rich is to buy stakes in large companies years before they are large companies. Captain Obvious: If you bought Microsoft (MSFT) back around 1990 and held it for 10 years, you would have made 10,000%. Nobody ever recommends selling Microsoft, but you may notice from my disclosure that I don’t own it. Believe me, I’m not famous for recommending Johnson and Johnson (JNJ) as a sell around $70.
Sticking with the human lifecycle theme that I’ve been running with so far, there is a rather peculiar stage between when you are a young child to when you are considered a young adult. This is no different when it comes to companies, Chinese in particular. In humans this stage is called puberty. For companies, this stage is called uplisting. Uplisting is like going to college. It’s a required step to becoming available to more investors. What’s hitting the ground running? I’ll tell you.
Puda Coal (PUDC) recently has been beaten down from $5 in 2006 to $0.16 with the latest market crisis. That’s down 95% in price on improving business fundamentals! Puda Coal is reverse splitting 1 for 7 and reincorporating in Delaware in an effort to uplist and gain the attention of some investors that will take them as seriously as I do. Now they’re trading at $0.47, which is still absolutely ridiculously undervalued. Further note that the steel industry is taking off in China. While I’m on that topic, take a look at General Steel Holdings (GSI) and China Precision Steel (CPSL).
I hate talking about stocks that “popped” already, but Sino Clean Energy’s (SCLX) pop yesterday is more like pulling the choke on a chainsaw than pulling the plug on your vacuum cleaner. It’s looking to reverse split to uplist sometime in the next 180 days. Did I mention that they increased capacity by 250% and have a P/E of around 8? Investing isn’t rocket science, but this stock price should rocket — especially since they can increase capacity without expanding by another 185%.
Rino International (RINO) just hopped onto the Nasdaq. They also work in the steel industry where their business is focused on protecting the environment. China North East Petroleum (NEP) started trading on the Amex last month and proceeded to fall over 30%. Ouch! Again, P/E less than 5 and an organic growth of around 20%+.
A stock I mentioned last week, China Digital (CMTP) joined the uplisting train by reverse splitting 10 for 1 over the weekend and grabbed a new ticker symbol, changing from CHID to CMTP virtually overnight. Even though it’s up 50%, it’s still cheap. How many stocks do you own can you say that about?
All said, that’s only what’s been announced. Since June I’ve really been strapping myself into the Chinese uplisting rocket that appears to be taking a 1 way trip. The direction? Up. To me, it’s not a question of how fast, because I’m confident that over time, the speed at which these companies appreciate in price is going to be relatively faster than any index you could compare them to. The question, how high? Realistically, I don’t see these being the next Microsoft with 5 digit percent returns, but you won’t see me complaining over 3-4 digit percent returns anytime soon. My current long term picture is mostly dominated by 4 digit percent return opportunities.
Let’s break out the risk. For starters, I don’t see how people actually believe anything is truly efficient. In everyday life there are so many inefficiencies and perplexities in abundance for the naked eye to witness first hand. Stock prices are determined by whoever shows up on any given day and fluctuate wildly. It is my uncommon belief that I should only buy when I am sure that I can sell at a higher price. There are a lot of other people out there that are going to tell you that’s impossible. I’m not here to make friends.
Know the incentives of those you are listening to. Wall Streeters get paid if you trade stocks and pay for their advice. Journalists get paid if you buy their magazines or read their stories online. Mutual fund managers get paid the more money they can convince people to give them. Notice how none of these groups tend to get paid for their accuracy or their ability to keep you from losing money. And that, after all, is what really matters. Isn’t it?
Disclosure: Glen and his investors own Puda Coal, Sino Clean Energy, China North East Petroleum and China Digital. Glen and his investors also reserve the right to purchase General Steel Holdings, China Precision Steel, and Rino International.