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Forget Europe, eye China: I see fast-growing companies selling cheaply
Peter Siris

http://www.nydailynews.com/money/2010/05/24/2010-05-24_forget_europe_eye_china_i_see_fastgrowing_companies_selling_cheaply_.html

Forget Europe, eye China: I see fast-growing companies selling cheaply
Peter Siris

Monday, May 24th 2010, 4:00 AM

Favre/BloombergShoppers walk in a street lit up electronic billboards and neon signs in the shopping district of Mong Kok in Hong Kong. Related NewsAt the arthouse: 'Holy Rollers' meet 'Wave'Toyota recalls Lexus cars in Japan, US to followDalai Lama trashes China for censorship, propagandaGOP wins House seat in Obama's home stateWhite House: Obama fully supports S. Korean president's response to N. Korea attackI do not try to time the stock market because I don’t know where momentum will take it. Instead, I focus on valuations of individual stocks. When a stock looks cheap, I buy. When it gets expensive, I sell.

I am usually early, dumping when markets are making new highs and jumping in when others are frightened. In short periods, my picks may underperform, but over time my discipline works well.

A few weeks ago, I wrote about how stocks had become expensive as complacency ruled. I did not expect the market to come down as fast as it did, but now complacency has been replaced by an ocean of worry and many stocks have gotten cheap.

The best way to tell is to look at smaller companies that usually lead bull markets up and bear markets down. To tune out the noise, I focus on companies that have little to do with the current economic problems confronting the world.

I began writing this before heading once again to China, so I decided to look at some of my favorite U.S.-listed Chinese stocks that I’ve bought for my fund. As always, if you’re thinking of investing, you’d be wise to do additional research.

Understand that these stocks are much more volatile than the big-caps. A profit disappointment can send one of these stocks reeling.

I have excluded those with exposure to Europe and Chinese real estate. I found a lot of bargains.

For example: food companies that sell their products in China. These companies have nothing to do with Greece, and the Chinese have to eat, so they should not have been impacted the past few weeks. These firms are growing rapidly but their stock prices have been trashed.

Yuhe, which sells chickens, is selling at low valuations, as is American Lorain, a packaged food company.
I think earnings will accelerate in 2012. China Marine, a seafood company, is another, as is Zhongpin, a fast-growing pork company, and Yongye, a fast-growing fertilizer company.

The problems in Greece will not cause the Chinese to eat less chicken or pork. Restrictions on real estate in Beijing will not impact how much fertilizer a peasant in Inner Mongolia uses, and financial regulation in the U.S. will not cause a slowdown in the purchases of packaged foods in China. In other words, these stocks have declined for irrational reasons and are now selling at prices that I don’t think will last.

Health care is also a very stable business that should not be impacted by the problems frightening investors, and China is ramping up health care spending. China Pharma, a fast-growing company with a strong drug pipeline and a great management team, is selling at a low valuation, as is China Sky One.

China Yida, a dynamic tourism and entertainment company regarded as the Disney of China, is also cheap. Do you think Chinese are going to give up their modest vacations because of economic problems in Europe?

Unrest in Europe and in China should be bullish for companies that provide security services, yet two of the leading players in China have gotten very inexpensive compared with the profits they generate. They are China Security and Surveillance and China Information Security.

Other companies like Wonder Auto, Puda Coal, Gulf Resources, Fushi Copperweld, Harbin Electric, Soko Fitness and QKL Stores are all selling at prices that don’t reflect their growth rates.

These stocks can go down further if people panic. But when I see fast-growing companies selling so cheaply, I know that it’s time to start buying. So I’m on my way to China to find more bargains.

Your Money columnist Peter Siris is an investment manager at Guerrilla Capital in Manhattan.