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Chinatown


finetrader
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China market might be overvalued, but it is still the promised land for future growth.

Anyone care to share their best ideas to invest in this country?

I'm following many chinese stocks that are listed in North America, but the ones I find the most interesting are those three:

 

HF.to: fertilizer company, growing, p/e around 15, good management

UTA: small cap online travel agency, cheap valuation compare to peers like LONG and CTRP, p/e is around 10, growing fast

NPD: retail drug stores , too expensive though, P/E around 25-30

 

I own HF and UTA, and would love to own NPD at the right price.

 

 

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Short Chinese CRE and/or banks exposed to it, and companies exposed to lower rated credit there.

 

Re:NPD

 

While looking at this company a few years ago, I recall passing mainly b/c of some aspect of their ownership structure/insider relations with the company. I can't recall right now, but I would look into it if it if the company is on your radar. Also, if my memory is correct, the vast majortity of stores are leased. China has had quite the CRE boom this past decade, so I would check to see or guesstimate what the lease reset terms might be if any are due to expire relatively soon.

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A couple lower risk plays (perhaps lower potential return too – but I still think pretty good).  They both have stable and growing business models in North America -- with some tremendous growth potential in China and other emerging markets thrown in free.

 

Ingersoll Rand

Paying down debt quite quickly as they increase free cash.  Goal is to get their debt rating up to 'A' status.  Price has dropped back to $32 level -- representing a multiple of about 8x free cash of about $4.  As they integrate the recent Trane acquisition -- some of the free cash being generated is coming from improved inventory turns, working capital improvements, etc.  While some of these improvements may be temporary -- they should become more than offset by lower interest costs from paying down debt, improving their ratings and a recovery of the overall economy and pent up demand.  So my thinking is that they can maintain this kind of free cash generation up until the economy recovers -- after which they should continue on a more consistent earnings growth trajectory (3-5 percent better than the overall economy without using any of this free cash).  After they have debt levels to where they need them -- all this free cash can be put toward other purposes (dividend increases, buying back stock, acquisitions, etc).

 

At the time they purchased Trane - Trane's volumes were 75% Americas, 25% International -- with very little in China or India.  The Ingersoll Rand company though has had a presence in China and India -- so the synergies are quite large.  Ingersoll Rand becomes a one-stop shop when it comes to expansion in places like China and India.  When Wal-mart (or whoever else) builds a store - Ingersoll Rand provides them with the climate control package - not only for the store itself - but also the refrigerated display cases.  Beyond the theme of this thread is also energy efficiency.

 

Indigo Books and Music

World class book retailer here in Canada.  It is not as cheap as it was a few months ago - but it is still pretty reasonable - particularly if you consider that by YE March/10 they should have close to $5 in cash with very little debt.

 

So what does a boring book retailer have to do with China?  Mainly their e-book startup, Kobo (www.kobobooks.com) that is partnering with the Li-Ka-Shing empire.  Predictions are calling for e-books in China to exceed that of the US by 2012.  Unlike the past era of PC’s – the era we are entering (mobile devices) has so many different operating platforms.  Kobo is one of the few to recognize that mobility from device to different device will be important in the years ahead.  They are currently the largest global player with this device agnostic strategy.  They have very good relations with publishers and are part of the decision making as to how things evolve.  Over time I think they can develop market share in the U.S -- but it might take more time than say China where things are just beginning and they are very well positioned (China's ebook growth has so much potential).  If it doesn’t work out – at least it is thrown in for free along with the $5 in cash.  Some other interesting things going on in their stores here in Canada – but I won’t go into it as it’s off topic to this thread.

 

UCP / DD

 

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