Thursday, April 19, 2007
Ever Deeper Underdogs vs Ever Rising Superstars
Can the underdogs go any deeper? Can the superstars get any more out of reach?
This is a market as divided as ever. If you happen to sell inside China, you're automatically treated like a Hollywood celebrity. If you happen to sell outside China, you're banished into the dog house.
Of course I'm crying out loud for my favorite industrial plays, which I've picked to outperform the market in 2007. (http://abaci-investing.blogspot.com/2007/01/every-dog-has-its-day-my-industrial.html)
So far they have delivered excellent results against all hostilities (RMB, oil price, wages, tax reform, blahblahblah) but the market is clearly turning a blind eye on it, while busy worshipping the latest batch of superstars (note they come in batches).
Just a look at the figures will tell you the whole story.
(2006 earnings; EPS growth; p/e; yield)
Stars
Minth (425) - $269m; 6.8%; 25x; 1.2%
Shandong Molong (568) - $139m; 59%; 25x; 0.66%
Enric (3899) - $97m; 0.2%; 23x; nil
Dogs
WKK (532) - $250m; 37.2%; 4.4x; 1%
Arts Optical (1120) - $166m; 72.1%; 6.7x; 4.8%
Man Yue (894) - $122m; 15%; 8.7x; 2.2%
Valuation gap this big has not been seen since the last IT craze when industrials, including Techtronic, were ignored and all eyes were fixed on China Mobile and PCCW. By the way, coincidentally HSBC is once again being ignored.
For those, including myself, who have missed out the rally last time, now is the chance to redeem. But one cautionary note, not all industrials are created equal and management quality really matters in tough times like now. Choose wisely.
DISCLOSURE: I hold all 3 dogs and none of the stars at time of writing.
This is a market as divided as ever. If you happen to sell inside China, you're automatically treated like a Hollywood celebrity. If you happen to sell outside China, you're banished into the dog house.
Of course I'm crying out loud for my favorite industrial plays, which I've picked to outperform the market in 2007. (http://abaci-investing.blogspot.com/2007/01/every-dog-has-its-day-my-industrial.html)
So far they have delivered excellent results against all hostilities (RMB, oil price, wages, tax reform, blahblahblah) but the market is clearly turning a blind eye on it, while busy worshipping the latest batch of superstars (note they come in batches).
Just a look at the figures will tell you the whole story.
(2006 earnings; EPS growth; p/e; yield)
Stars
Minth (425) - $269m; 6.8%; 25x; 1.2%
Shandong Molong (568) - $139m; 59%; 25x; 0.66%
Enric (3899) - $97m; 0.2%; 23x; nil
Dogs
WKK (532) - $250m; 37.2%; 4.4x; 1%
Arts Optical (1120) - $166m; 72.1%; 6.7x; 4.8%
Man Yue (894) - $122m; 15%; 8.7x; 2.2%
Valuation gap this big has not been seen since the last IT craze when industrials, including Techtronic, were ignored and all eyes were fixed on China Mobile and PCCW. By the way, coincidentally HSBC is once again being ignored.
For those, including myself, who have missed out the rally last time, now is the chance to redeem. But one cautionary note, not all industrials are created equal and management quality really matters in tough times like now. Choose wisely.
DISCLOSURE: I hold all 3 dogs and none of the stars at time of writing.
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