Chinese IPOs March on the Nasdaq
Jan 21st, 2005 | By James Boric | Category: Investing Strategies, Penny stocks, Pink sheet stocks*** James Boric reports from a snow-covered Victorian district in Baltimore called Mt. Vernon…
*** It was a meeting of the minds. The editors of Outstanding Investments, The GRIP, Fleet Street, Penny Stock Fortunes, MST Trader Alert, Vantage Point Investment Advisory and Penny Sleuth were all locked in a conference room for five hours at our headquarters in Baltimore. Our mission: to share our single very best investment idea for the next month.
What an afternoon it was…
Todd McKew, editor of the MST Trader System, started things off by reading an excerpt from a magazine…
“In a little village outside Tokyo, Japan, called Yuzuri Hara, a man by the name of Hiroshi Sakamoto wakes up every morning to farm his field. Mr. Sakamoto is 86 years old and spends about four or five hours working each day. And he is not the only man in his village that old. More than 10% of his village is 85 years or older — and they are living longer and longer every year.
“In fact, not only are the people of Yuzuri Hara living longer, they are living much healthier. Many of them don’t have to see a doctor, and diseases like cancer, diabetes and Alzheimer’s are almost nonexistent in the town. Plus, their skin is smooth and young looking. There are almost no signs of aging. And that’s impressive when you consider many of the people work outside all day and don’t use much sunscreen (if any at all).
“For instance…
“Tadanao Takahashi, 93, has worked in the sun for 50 years, never once using sunblock or skin cream. The unhealthy habits don’t stop there, Sakamoto smokes a pack of cigarettes a day and doctors tell him he is in good health and is physically fit.
“Many people believe that the town of Yuzuri Hara holds the key to the ‘Fountain of Youth.’ But medical researchers believe it is their unique diet that is the key to their anti-aging enigma. Foods like satsumaimo, a type of sweet potato; satoimo, a sticky white potato; konyaku, a gelatinous root vegetable concoction; and imoji, a potato root, are just some of their favorites.”
It turns out these Japanese villagers consume a high level of hyaluronic acid — a natural substance found in our bones, joints, skin, lips and eyes that lubricates, cushions and protects our soft tissues and cells.
Not only is hyaluronic acid important for preventing and treating osteoarthritis,it is also one of the enzymes that staves off wrinkles associated with old age. So that’s exactly why the villagers in Yuzuri Hara are not only living longer bu tkeeping their youthful appearance.
That’s great, but how could that possibly help us — as investors?
Well, it turns out, Todd discovered a company that trades on the Pink Sheets called Novozymes (NVZMF:PINK SHEETS). It uses strains of this hyaluronic acid in creams and injections to help people fight advanced stages of osteoarthritis well as get rid of wrinkles. (According to Todd, the FDA has approved both applications!) And the stock is taking off…
In the last year it has jumped from $36 to $48. And Todd says the sky’s the limit for this company.
We’ll see what happens with Novozymes. But it was certainly an interesting story. Expect to hear more from Todd in the future…
*** Next up was Outstanding Investments editor Kevin Kerr — who is quoted in CBS MarketWatch on a weekly basis for his expertise in the commodities markets. Kevin shared his insights about gold, oil, natural gas and even shipping companies with us. And I have to say, he made me think — a lot.
“This may be a great opportunity to add a shipping company to your portfolio,” Kevin said from the other side of the long conference table. And his logic was pretty simple…
“As demand for oil continues to be strong, so will demand for the shipping companies that transport that oil all over the globe.”
Made perfect sense to me. So I asked Kevin what company he liked the most.
It just so happens he came prepared with an annual report and a ton of company information on OMI Corp. (OMM:NYSE) — a relatively small company based out of Stamford, Conn.
What attracted Kevin to OMI was how young the company’s fleet of ships is. He explained that most ships in the industry have a lifespan of about 20 years. And the majority of OMI’s ships are only 3-6 years old. That gives OMI a distinct advantage over its older competitors. It means the company will have to spend less money buying new ships or restoring older models. And that should matter when it comes time to report earnings and net profit margins.
Then Kevin encouraged us all to look at OMI’s price chart from last year.
So your Penny Sleuth editor did. And I was impressed…
After making a run from $10 to over $20, it recently corrected back down to under $17. And as oil prices rise back up, there’s a good chance OMI’s stock price will too.
We’ll see…
By the way, if you want another shipping company to look at, check out Excel Maritime Carriers (EXM:AMEX). It also made a huge run in 2004 — as oil prices rose. The stock rose from $4 to $65. And now it’s trading at $23. May be worth checking out!
If you are interested in learning more about Kevin and his services, check out his report on natural resources…
http://www.agora-inc.com/reports/OST/dayB03
*** Finally, your very own Penny Sleuth — Irwin Greenstein — wowed us with all the opportunities that he sees in China in 2005. Specifically, Irwin expects this to be a banner year for Chinese IPOs on the Nasdaq.
According to Irwin, “Thirty-five percent of all IPOs on the Nasdaq last year were Chinese companies. And this year will be no different.”
In fact, below, Irwin shows you two private Chinese companies that you should keep an eye on right now. He thinks they will make a lot of noise in 2005 — as they go public…soon! Check ‘em out…
By the way, Irwin and I aren’t the only ones who think investors will be able to make a lot of money in China this year. My colleague Steve Sjuggerud found a way that you could make 675% by tapping into a $474 BILLION fund backed by the Chinese government. Find out more by clicking on this report…
http://www.agora-inc.com/reports/TRW/WTRWF164
Steve is one of the smartest investors you will ever meet. So you will not go wrong checking out what he has to say.
Irwin, tell us about the two Chinese companies you think will go big when they hit the Nasdaq in 2005…
Chinese IPOs March on the Nasdaq
Put your broker on speed dial if you want to cash in on the biggest IPO phenomenon of the year. Given the tremendous demand for these foreign companies, it can only take a few hours for a great small-cap opportunity to slip through your fingers. Make no bones about it: Chinese IPOs in America will break out in 2005.
The momentum will accelerate from 2004, when 35% of the Nasdaq’s IPOs were Chinese companies — nearly all of them tech. The Chinese call it “marching on the Nasdaq.” But what it really means is that the bull and the bear will geta new rival: the dragon.
In China, as futuristic cities of glass rise up from rice paddies and an emerging middle class leapfrogs industrialized economies into the digital age, home growntech entrepreneurs are turning to the public markets to sustain intense growth and competition. While Hong Kong’s GEM stock exchange has enjoyed the boom, the Nasdaq has become the exchange of choice for Chinese entrepreneurs and their backers — affording American small-cap investors the easiest entry yet to these hot new tech issues.
The march on the Nasdaq corresponds with new Chinese legislation that makes it tougher than ever to go public on the national Shanghai and Shenzhen exchanges.
As of Jan. 1, the China Securities Regulatory Commission adopted a rigorous IPO pricing system to stop the sandbagging blamed for heavy shareholder losses. In the past, artificially low initial prices caused stocks to soar when they opened — and that’s when insiders cashed out. As the stocks dropped dead, mom and pop shareholders were left broke. This scheme had reached epidemic proportions until the government finally cracked down with a six-month ban on IPOs. The ban was lifted when the new policy took effect with the new year, dictating a broad and expert consensus for ethical price setting. Regardless, the Chinese stock exchanges still pale against the Nasdaq’s liquidity, volume — and sex appeal.
For instance…
Before China.com went public on the Nasdaq, in 1999, the computer services provider barely registered as a blip in the Chinese collective consciousness. After opening day, when its stock exploded from an initial price of $20 to a closing price of $67, the 235% surge turned China.com into an overnight sensation — jolting the popularity of its Web site in China from No. 39 to No. 6.
Although China.com’s stock price eventually tanked to under $4, its seismic IPO awakened Wall Street to the possibility of speaking Mandarin.
It also showed Chinese executives that the pot of gold at the end of the rainbow indeed had an address: 1500 Broadway, New York, N.Y.
The Nasdaq was a logical choice for Chinese companies looking to go public in the United States. The exchange lists the lion’s share of public tech companies, including 88% in the semiconductor sector, 90% of biotech and 75% in a sector called “computers and peripherals.” Given that nearly all the Nasdaq Chinese IPOs are tech ventures, it was a natural fit.
In fact, it was an excellent fit…
Small-cap investors who got in early made a killing in 2000 on two Nasdaq Chinese IPOs. After online media company SINA closed on its first day of tradingat $20.69, it has since shot up to $26.77 as of yesterday — a gain of 29.4%. And NetEase.com, a gaming and content provider, took a joy ride of 293.1% from its first-day close of $12.12 to yesterday’s closing price of $49.97.
But here’s the small-cap rub…
These companies surpassed the small-cap valuation limit of a $1 billion in no time flat. For SINA, it took less than 30 days. Netease.com had to wait almost three years to approach a $1 billion market cap, and then suddenly blew right through it to its current market cap of $1.61 billion. But the pattern was established for the Nasdaq Chinese IPO: Once the resistance level is shattered, the price keeps ongoingright out of the small-cap ballpark.
The rally continued into 2004, especially when it came to 51job, Inc. and Shanda Interactive Entertainment, Ltd.
51job is China’s Monster.com — a top job search site. 51job recently tipped out of small-cap territory, with a market cap of $1.19 billion. All you have to do is look at its stock performance to see that 51job is well on its way to a mid-cap ranking. Since the first day of trading, Sept. 30, when the stock closed at $20.75, it has increased to $45.05 today. That’s a gain of ONLY 117.1% in about3½ months. So small-cap investors who dawdled…lost out.
Same with Shanda Interactive…
It’s one of China’s biggest online gaming operators — allowing up to 1.4 million concurrent users to virtually chase, maim and kill each other just for the hell of it. When its stock appeared on the Nasdaq, in mid-May 2004, at $11.30,the company was a rising small-cap wonder. Today, Shanda Interactive has a market cap of $2.67 billion and its stock is trading at $37.60. So how long does it take for one of these stocks to jump 232.7%?
2005 will be another a blockbuster year for Chinese IPOs on the Nasdaq. And right now, the buzz is all about Target Media Holdings, Ltd. and Focus Media Holding Co., Ltd.
Although neither of these companies is public yet, their 2005 debut on the Nasdaq is widely anticipated. When that happens, expect a war between the two Chinese online media adversaries. They compete for closed-circuit TV advertising that is broadcast over wireless networks within buildings. Focus Media pegs the market size of that advertising segment in China at $20-30 billion over the next four years.
Target Media has lined up a true heavyweight backer, The Carlyle Group. The $15 million infusion from these guys buys access to the political and financial clout from powerful statesmen and financiers worldwide. To make a point, former President George H.W. Bush served as a senior advisor to The Carlyle Group.
Focus Media has in its corner investment banker Goldman Sachs — which seems to have seized the lead in shepherding Chinese tech companies onto the Nasdaq. Goldman has invested $30 million in Focus Media. And that’s on top of the$40 million from Japan’s SOFTBANK — perhaps the most influential investment and technology company in Asia. Overall, Focus Media has raised about $70 million,making for a formidable war chest in its battle against Target Media.
In addition to these two juggernauts, I’m sure there will be plenty of surprises. We’ll keep our eyes on TechFaith (wireless handsets), Junnet (prepaid cards for online games) and Watchdata Technologies (secure computer operating systems) for possible Nasdaq IPOs later this year.
So don’t miss out. Put your broker on speed dial…and check your e-mail box every Tuesday and Friday for the latest developments in Penny Sleuth.
Or face the wrath of the dragon.
Happy investing,
Irwin Greenstein
January 21, 2005
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