China Growth Stocks

[ratobranco]

Do not rely on any lists of legit Chinese RTO/IPO stocks that I may have sent you awhile back. As I have studied this space more and more, I have come to the conclusion that close to 100% of the companies are fraudulent. Maybe a full 100%. Personally, there is not a single RTO name that I trust or that I would be confident investing in. Period. End of story.

If you must invest in Chinese names, one name to look at may be BITA. I haven't seen any OTGDD, but they have a very savvy investor in Chase Coleman, a large and visible web presence in China (top 200 Alexa ranking, higher than CTRP if I remember correctly), a partnership with BIDU for online auto advertising, and the short interest is very low. At the same time, the stock is probably too expensive for most of the investors here. But, as is usually the case, you get what you pay for. The stock is about 10 times 2012 earnings which is quite reasonable for a growing company if you take fraud out of the equation.

Also, take a look at MCOX. They are unlikely to be a fraud given that they recently received a huge investment from SINA and from another key competitor, Dongxiang. These companies know their neighbors, they know their industries, and they aren't going to get fooled like we might. Note that the SINA/Dongxiang investment in MCOX was at 6.00, and the stock is now at 1.88, down from an 18.50 high for the year. It's definitely distressed equity, and there is a decent chance it goes to zero long term, but the reward is high if they can fix their business (they are losing money right now, and just put out a terrible earnings report for 1Q). But they are extremely cheap, as US investors have panicked.

Ultimately, I think the key is to invest in China alongside the mainlanders. In other words, the HK exchange. All you need to buy HK stocks online is an account with interactive brokers. There is probably some fraud there, just as there is fraud everywhere, but nowhere near as much as here. Over there, the companies are domestically regulated, and if they defraud investors, they are defrauding Chinese and HK citizens. The politburo will put a bullet b/t their eyes.

Here is a good global emerging markets value investing board where some attractive non-US listed Chinese names are discussed. Note that these are real chinese stocks, the kind listed in HK and owned almost entirely by Chinese mainlanders. In other words, the real deal, not this fake US-listed RTO crap (that nobody over there knows about when you ask them).

http://investorshub.advfn.com/boards/board.aspx?board_id=20764

One attractive name is Dongxiang. Top Chinese sportswear brand, trailing P/E of 5, 5% dividend yield, lots of cash.

http://www.google.com/finance?q=HKG:3818#

Tell me again why people feel they need to invest in this RTO garbage? Dongxiang is selling at an extremely attractive valuation, and you don't have to worry about fraud. They may still go down given the weakness in the sector and the overall Chinese and global stocks markets (I see nothing but problems going forward), but when a stock goes down on transient macro or sector specific concerns, that tends to be much less painful than when a stock goes going down because it is a fraud and worth zero and just pulled a fast one on you.