Value Investments can be hard to find. The companies that I will profile are all from big emerging economies such as China, Brazil, Indonesia, and Malaysia (to name a few). They are all real companies with consistent and growing revenue streams that have had valid audits. Let's find them together!

Saturday, May 28, 2011

Inflation and the Chinese Domino Effect

Societe Generale released a report entitled "The China Domino as Fallen" in which analysts describe three main points:

  • Domestic inflation: China is switching to a consumer driven economy which means more domestic demand. Supply remains constant, so prices rise.
  • China exports inflation:  Chinese demand for oil and steel has pushed prices up in those marketsand made other commodities rise as well.
  • China demand shock: The country's long-term economic re-balancing will result in a permanent increase in global demand. Supply is sticky, and it will take time for it to catch up, thus limiting the world's ability to cope with this rise in demand. 
My take on these points are:
  • Domestic Inflation: China is switching to a consumer driven economy which means more domestic demand and supply will rise because of it.  Prices, while they may go up, will be pushed back with more production to meet these demands.  As far as China is concerned, their domestic inflation would be more tied to a failing dollar (which the yuan is locked onto) than an inflationary mark due to demand.
  • China Exports Inflation:  China's entrance into the higher demand category when it comes to oil and steel is only natural for a developing country. In a global market, more demand means higher prices for limited commodities.  As the prices are driven higher, smaller countries will get squeezed and those who cannot afford to pay the higher prices will fall out and then prices will trend back down so they can buy.  In essence, as "Emerging Economies" grow and stabilize, prices for everything globally will go up.  Standards of living increase as wages increase as prices increase.  If your dollar is only worth a dime in 10 years then shouldn't you be making $10 to $1 in the next decade for your own production as well?
  • China Demand Shock: "The country's long-term economic re-balancing will result in a permanent increase in global demand. Supply is sticky, and it will take time for it to catch up, thus limiting the world's ability to cope with this rise in demand."  I DO NOT agree with this.  The world and global markets will be able to cope with the rise in demand just fine.  As higher demand is what the world needs.  The question becomes, where is the offsetting production to pay for the new demand? If there is simply continued money printing and credit use to pay for the demand, while fine for the short term, it needs to be reinvested and thus creating more production or supply to meet the demand.  China will be able to keep up with itself as it grows.  We need to be looking there to help pump some of our own capital in so when the rise, our capital also grows.  
That's my take, what's yours?

Wednesday, May 25, 2011

SRA Convention in San Francisco

The 7th Annual Spring Growth Stock Conference hosted by Security Research Associates, Inc. was held yesterday (5/24) in San Francisco.  34 different stocks had presentations from their respective CEOs, CFOs, and Business Developers.  One of the stocks was who I have been highlighting, Asia Carbon Industries, presented.  For a full list of those who presented, click here

A colleague of mine was in San Francisco for the event (doubt he had a flower in his hair, but maybe) and I spoke with him on the phone after the presentation and breakout session. His take from the event:

1-     There were a group of investors trying to figure out how to slowly buy up the float.  The lower end sales that have caused the price to drop recently needs to get bought out in full so the stock can really run.

2-     The company story of Carbon Black for tires in China was compelling.  It is almost a “boxed” market. They have solid business already and are continuing to beat out any competition.

3-     He was very impressed with the net income gain achieved by adding “wet production” to the process.  Almost 44% of total revenue. (Talked about that a bit a couple weeks ago)

4-     He left feeling that it was not if, but when ACRB will start rolling.  At current earnings of .04/share for 1st Qtr he sees the possibility of 0.16 or higher/for the year 2011.  He’s still trying to figure out a multiple.  Maybe 12 – 18 is about right, which  puts the stock around $1.92 to $2.88.  

I agree and have been talking about this for the last couple of weeks.  It's always nice getting some corroborating support!  We will see how this plays out but I'd get in this now, before it takes off!

Tuesday, May 24, 2011


As talks of Alternative energy are ever present in the world, Asia is no different and growing very rapidly in this arena.  One of the companies that I have been looking into was just profiled Friday on Motley Fool.  A-Power Genertion Systems (APWR) fits as an undervalued stock.

Alternative Energy continues to be a hot topic and is gaining traction in the market. Founded in 2003 and working mainly in China, APWR produces distributed power generation and micro power grids as stand-alone facilities to help power the steel, chemical, ethanol, cement, and food industries. They also make automatic control systems to monitor the performance of equipment in the system, including the boiler, turbine, generator, grid supply, and demand and distribution, as well as space and water heating functions. Also, it manufactures and sells wind turbines and equipment for manufacturing PV cells and solar panels.  These make it a viable candidate to do extremely well in an emerging market. 

As APWR continues to grow it is involved in a JV with GE developing gearboxes that hit the market this past quarter and are finalizing a deal for a wind project in Texas.  Keep an eye on this one as it should be trending upward soon!

Thursday, May 19, 2011

Chinese Auto Industry

Something I have been looking into recently is the Chinese Auto Industry.  I was led to this based on a few of the new companies that I have been looking over and trying to figure out the various avenues that have spurred their growth.  The car industry in China is growing at a very rapid rate and they are consistently looking to expand.  Currently there are $1.9 million cars sold in China each month.  That compares to $1.2 million cars per month in the US.  In 1990 there were 5.6 million cars.  In 2010 there were an estimated 91 million vehicles.

In Q1 '11, a report by the Chinese Association of Automobile Man
ufacturers finalized their sales at an increase of 13.81%.    If this trend keeps up, they will crush the U.S. in auto sales this year by almost 40% or more.. 

I followed this trail some more and found China has made efforts to purchase Saab and is looking to buy more in the European auto industry, and has manufacturing plants opening in its country for Ford   (transmission building plant).  Suppliers are looking at how to expand into the local auto manufacturing as well since they own about 40% of the market compared to international sales.

Geely Automakers has already bought out Volvo.  While this happened in '10, it will be something to watch moving forward as they will have a full year with Volvo in '11.

One thing that jumps out to me is the thought that these automakers may get left out of the Chinese markets; whereas they are going to be bought by Chinese companies and will then have all the access they need.
A couple others: BYD (Warren Buffet's choice), DongFeng Motor Group, and Brilliance Automotive

Note: these trade in Hong Kong

Wednesday, May 18, 2011

New Companies!

Looking forward, keep your eyes on ACRB as they are going to start rising on their continued growth.  I recently got my hands on a list of Chinese companies that are traded here in the US and am going through it trying to pull some of the gems out of it.  Some of these are obviously known which would not make them hidden gems at all.  If you know of any of these types of companies coming out of other emerging economies please let me know and I will do my best to highlight them and put my own analysis into each one.

Something to chew on while I wade through the new information I just got my paws on, read this.It is intriguing that Goldman Sachs is thinking similarly to most of the people I talk with. . .if the buzz is starting that Chinese companies are going to buzz through the second half of 2011, I would suggest following my lead, as well as others, and get in now at lower prices before the undervalued become market value. 

Tuesday, May 17, 2011

Asia Carbon Industries: A deeper look

I have been comparing Asia Carbon Industries latest earnings report to their 2010 financial statements and only see great improvement and a continuing trend in growth an revenue.  It seems that they are one of only a few Carbon Black producers in China and one of the few public company's in the world that produce this compound.  Their revenue was up 154% in Q1 2011 vs Q1 2010 and that was with 10 days of Chinese New Year's.  This little known gem is quickly gaining market share in China's growing auto industry as Carbon Black is used in reinforcing tires.  They posted a $0.04 EPS for Q1 '11 whereas they on posted a $0.07 EPS for all of 2010.  4 cents of that came in Q4 after they switched from a dry to wet process. 

One of the many things I looked into was how well this company presented their accounting or what they did to help  keep clean books.  According to a statement from CEO, Yao Guoyun, ACRB went public through a Form S-1 rather than a reverse merger.  More from that article here

Pretty much, Asia Carbon Industries checks out as a safe, growing investment opportunity.  It is insnely undervalued and will allow for 2x, 3x  growth in the next 12 mos.  They are continuing to develop and will show continued profitability as time goes on! I would suggest getting in now while it is so low!

Monday, May 16, 2011

Asia Carbon Industries posted 10Q

Asia Carbon Industries posted its earnings for Q1 today!! It looks, at first glance, to be fantastic as expected.  The price dropped to $0.80 before this was released. I retrenched my position at such a ridiculously low price and am going to continue to do so as this company is primed to run.  I'm going to do some more investigating on this!  Any comments from the crowd?

Thursday, May 12, 2011


Investing in foreign markets is a smart play right now.  I have been profiling companies that fall into the categories that are described in this article from WSJ

In business, looking for new revenue streams is always on the forefront of the investigative process.  Whether this is done by manufacturing a new good to be sold, innovation of new technology, branching into similar markets or vertical integration of an industry; keeping your business growing can present a number of obstacles and opportunities.  This is no different when it comes to investing.  Diversification always seems to be the biggest buzzword used when discussing investing ideas.  Finding profitable companies in other countries should be an idea that you need to consider.  There are great companies that just need to be found.  While they may not lead to “get rich quick,” they can lead to growth for the future.  In a time where nothing is certain, the value of investing in an emerging economy is less risky and less volatile than most other investments.  With continued global levels of living conditions rising, the smart investors are looking to these countries hoping to cash in on their progress.  If only we had all invested in tech stocks in the ‘80s (I was born then, people have invested in me for a decent ROI in my opinion). 

If you, as an investor, look to emerging economies and can find companies that are generating profits and growing, it only makes sense that they will continue to do well and prosper as their respective country moves upward. Looking categorically at developing sectors such as Manufacturing, Mining, and Healthcare makes these all the more enticing plays!

I continue to pound the table on ACRB, BSPM, VALE, and ONP
As a final thought and preview of things to come, read this

Tuesday, May 10, 2011

Super Value: China's Healthcare Sector

Healthcare is a worldwide industry.  I started looking for a low valued BEE (Big Emerging Economy) stock in the Healthcare industry.  I found BioStar Pharmaceuticals (BSPM).  Coupled with the article explaining China looking at shifting their economy to a domestic base vs. and export base, investing in China makes even more sense since their domestic population is literally 4x that of the United States.

BSPM is undergoing some changes at present that will cause the stock price to rise in my opinion.  About a month ago, they appointed a new CFO as their old one stepped down for personal reasons.  As anyone know, a change in CFO is a “shoot first, ask later” offense, and BSPM acted accordingly, on a shallow sell off.  While their stock price has trended downward for the last year, their financials support a much higher price.  They were featured at the end of March on, but again a lack of following has caused this stock to become undervalued.  With an EPS of 0.63 cents and an outlook that is very aggressive; BSPM should start regaining some of its previous stock price.  It seems that anytime anyone buys this stock it shoots up for a large gain and then falls purely on volume.  The last time I can think of seeing stock this undervalued was in January of ’09 when Apple was trading for $82 a share. . . .we all know where it is now.

While I don’t know, or think, that BSPM will go to $350, it very well could rise at least 2 or 3 times current levels.

According to their website, their number one selling drug  helps fight Hepatitis B, which affects 10% of the Chinese population. (Roughly 120 million people or 1/3 of the United States population)  They also manufacture and sell various nutritional supplements and a few other OTC drugs.  Their drugs are patented and they continue to do research while their market share and revenue increases.

I’m left scratching my head.  I will continue to investigate this for the next few days.  More to come soon!

Thursday, May 5, 2011

Undiscoverd Gems

Undiscovered gems are stocks that have solid management, consistent past revenue and a growth potential formula.   These are the factors that will drive “undiscovered gems.” In today’s market, these companies are hard to find in the U.S.  The A.P. released a story yesterday talking about the lopsided chances of U.S. based companies operating in China and vice versa.  They talked about "imbalance of opportunity" citing China's "opaque government regulations and poor enforcement of patents and other intellectual property rights indirectly discouraged foreign investment".  China refuted this story today. Talking about how they want to be "more open to foreign direct investment".  I believe that Chinese companies are operating under “controlled capitalism and have access to less expensive natural and human resources allowing them to compete with any company in the world.  If these companies are listed in the US, Singapore or other free market exchanges all the better for us.

I mentioned ACRB on one of my last blogs.  They posted a $0.04 EPS in Q410. This $0.04 was included in the total  $0.07 EPS for Yr 2010.  That’s 57% of 2010’s earnings.

I did some checking as to why there was such a disconnect and found that they switched their processing from dry to wet which allows them to better control output and make their product better, quicker, etc.  I’m not sure of the science behind processing coal, but if that’s what their science says and their books follow suit, the wetter the better!  I guess, moving forward, it seems that their Q1 report will show if this switch will be the catalyst for an ongoing rise.

Bringing it back to the top and “undiscovered gems,” a few companies to keep your peepers locked on ACRB, VALE (a Brazilian Steel Manufacturer),  and VLCM (US stock. . .I ride a volcom deck)

I’ll keep you posted!

Monday, May 2, 2011

Changing Your Thinking

Investment opportunities can be found all over the world.  A majority of couch traders (like myself) struggle to find great buys in the market.  That makes it tough to always be in on some of the screaming deals for undervalued equities that are out there.  Recently, I have turned my eyes to emerging markets and what some of their companies offer.  These seem to offer higher growth rates than a penny stock but still have limited risk based on the amount of exposure you will undertake.  If the object is to buy low and sell high, then the investment ideas I find should benefit you greatly!

Most of the companies I have found so far  trade with low volume. This is a combination of entry into American trading exchanges coupled with low public knowledge and/or awareness. Once these companies establish a trading following, these prices could rise 2x, 3x, 4x, or more.

If the assumption "that investing in foreign companies is bad for the USA" is rolling through your mind, this notion, while valid, has limited value to a true investor.  Most companies, wherever they are based, operate and trade on a global level in all aspects from retailing to manufacturing. Ascribing to isolationism as a rule for trading will significantly diminish your bottom line.  This trend is not visible in the high performing funds we all try to mimic so why not trade all over the world? Do some analytics.

Here's one of my finds: Asia Carbon Industries
Ticker Symbol: ACRB

More coming soon!