Tag - CGA

There's been a lot of muttering in 2010 regarding the under-performance of small cap China stocks. If you invest in this space, you know what I'm talking about. But hopefully you've made more than you've lost over time investing in China since, after all, the country has hosted some of the best performing small cap stocks ever to hit the exchanges.

So what's all the fuss about?

Well it's about time. The markets are selling off as investors book short-term gains that in many cases far exceed the long-term annual average gains of the market. If the Standard and Poor 500 index has averaged 6% since inception in 1957, and investors have beaten that by a fair margin in just months, even weeks, doesn't it make sense to sell some shares to lock in gains? Of course it does.

Intra-day today the Standard and Poor 500 index is down 1.8%, while the Dow Jones Industrial Index is falling 2%. But the Russell 2000 small-cap index is only down 1.3%. This is somewhat surprising because usually small-caps lead to the downside when there is a sell-off. Of course, they tend to lead to the upside when the markets are rallying too. And that's why I'm a small-cap investor, the potential for big profits.

But today's market action runs counter to that trend, and the takeaway message is that investors have not lost their appetite for risk. While the selling may not be over, I find the markets movement to this point to be encouraging for small-cap investing early in 2010. The Russell 2000 could retreat back to 600 (a 4.7% decline) in the coming weeks, but it will find significant support there and frankly I think it's unlikely that such a drop is on the horizon. I'm looking for the index to bounce off 620 (a 1.6% decline) if the selling continues.

Recent growth figures for China’s economy support further investment in the country.  Sure, it’s not an entirely “free” country and the blend of communism and capitalism is a far cry from our democratic and capitalist system here in the U.S.  But the numbers speak for themselves and China’s economy has been growing at an impressive 10% annually for the last three decades. And the government seems intent on continuing the rapid pace of economic growth, with the goal of improving the standard of living for its people.

The World Bank recently reported that China will surpass 8% growth in 2009, and will likely grow even more in 2010.  Bloomberg has said that the country’s manufacturing sector is growing at the fastest rate in five years, and industrial output will expand by 10.5% this year. This is all bullish news for China, and continued economic and population growth is certain to bode well for agriculture in the world most populous country.

You see, the Chinese government is concerned that climate change could spark a future food crisis and that the people could be at risk of famines similar to those that devastated the country in the early 1960’s.  So there is a big push to increase income for rural farmers and incentivize them to keep crop yields high...

Strange as it may seem, it’s been documented and published in the North Carolina Medical Journal that death rates decline and healthy living habits increase when the economy is rough.  The numbers show that as unemployment rates increase by 1%, death rates decrease by around 0.5%.  And its not because people are sitting on the couch out of harms way, its because they are actually living a healthier lifestyle – they are getting exercise, smoking less, eating better – doing all the things that we’d expect when everyone has a job.

So if you and your friends don’t have a job you should go for a run, eat some fish, relax - take a nap and appreciate that you will enjoy a longer life of not working.

Of course the research has its skeptics - like everything - but I’m not moderating a debate today (if you are interested, you can read more about the evidence in Fortune Magazine by clicking HERE).

I’m looking to find profitable investment opportunities to capitalize on the research.  And today that means looking at healthy living stocks.

Here’s what I do for SmallCapInvestor PRO subscribers - I look for overlooked companies we can still buy at reasonable valuations.  I’ve been bullish on small-caps, China, and agriculture for some time. So I start by scanning the universe of stocks that fit my particular criteria, and then dig further into the most compelling stocks in the group.  I look at quarterly and annual reports, review cash flow models, and determine the likely catalysts that will fuel a company’s future growth. 

After deciding which stocks look good, I decide what I’m willing to pay.  Then buy up shares when the window of opportunity is open.  The next step is to sit back and let Wall Street (and your neighbor) ‘discover’ these unknown stocks, and allow their buying to propel the share prices higher.

China Green Agriculture (AMEX: CGA) is one such example.  I first recommended this fertilizer stock in June of this year in my Special Report Going for Growth – 3 Top Chinese Stocks to Buy Now. This report is available to SmallCapInvestor PRO members.

China Green Agriculture develops and distributes high yielding, natural organic fertilizers in China – a market that is facing shrinking arable land, a growing population, and ongoing consumer food safety concerns.  The company has government support, and is expanding capacity and margins as it increases production of highly profitable concentrated fertilizers.    

As the company’s CEO recently said, “Our goal is to continue to introduce new high margin products to the market quickly, providing one of the most assorted product mixes of compound fertilizers available in China.”  This company is keeping it simple – speed to market, high margins, and a selection of products.  Everyone wins - consumers, investors, and the environment...

Tongxin International Ltd. (Nasdaq:TXIC), SmartHeat Inc. (Nasdaq:HEAT) and City Telecom Depository Receipt (Nasdaq:CTEL) are among the new 52-week highs in Wednesday's trading among companies with market capitalizations under $1 billion.

Also included among the results: Valassis Communications Inc. (Nasdaq:VCI), GHL Acquisition Units (Nasdaq:GHQ.U), Sourcefire Inc. (Nasdaq:FIRE), Alliance Financial Corp. (Nasdaq:ALNC), SXC Health Solutions Corp. (Nasdaq:SXCI) and China Green Agriculture Inc. (Nasdaq:CGA).

"Asia is booming again, and one industry that is growing like wildfire is 'green' tech in China," says Mark Skousen. In The Turnaround Alert, he eyes China Green Agriculture (AMEX:CGA)."

"One way to profit is to buy China Green Agriculture, one of the fastest-growing agricultural technology companies in China.

"Through its subsidiary Shaanxi TechTeam Jinong Humic Acid Product Co. Ltd., it produces and distributes 119 different organic fertilizer products throughout 27 provinces in China.

"Revenues doubled last year to $32 million, and earnings exploded 132% to $11.4 million. With a profit margin exceeding 35%, China Green is red hot, and is likely to continue growing rapidly.

"It doesn’t hurt that the CEO Tao Li is a high government official, serving as vice chairman of the China Green Food Association of the Ministry of Agriculture.

"The small cap stock traded as high as $33 a share when it first came out, and is now more reasonably priced.

"Still, it’s selling for only eight times next year’s earnings, and has a price-earnings to growth (PEG) ratio of only 0.31  (the lower a PEG number, the better)."