GlobalSpeculation.com
Bargain hunting for the sport

Check this out:

http://en.wikipedia.org/wiki/Thomas_Gold

Yeah, I’m not so sure about peak oil anymore.

http://freeenergynews.com/Directory/Theory/SustainableOil/

This could mean that Iraq also has 400bn barrels of oil reserves, more than saudi arabia.

First, let’s calibrate ourselves. Generally speaking, over the last 100+ years, the markets as a whole never get below a P/E of 5. Recently, I have found myself wondering, why on earth am I buying a company with a P/E ratio of 4 or less that is growing 10x faster than the markets ever have? Over the last year or so, I have applied this investment hypothesis of buying what I perceive to be undervalued companies to the test and from a nominal standpoint have done terribly.

There are some expensive lessons that I have learned in the past 12 months. In a nut shell, companies that are growing faster than everything else and performing incredibly well may continue to have low prices and may even get cheaper. Perception is reality. The reality of the situation is that for the most part, people don’t care about Chinese Microcaps. This shall pass.

In the short term:

1.       You can lose money buying a company with a P/E of 4 and growth of 30%+.

2.       There are people that will (try to) profit from lies and scare tactics.

3.       When people don’t care to begin with, the trend is for them to care less if they can.

The consensus: The analysis can be very right, but the timing can be very wrong.

In the long term:

1.       You will make obscene profits buying a company with a P/E of 4 and growth of 30%+.

2.       Lies and scare tactics are diluted by time and transparency.

3.       People are interested in profitable opportunities.

The takeaway: Always be ready for lower prices.

I had no idea that the short run could be 18 months or even longer. I have firmly believed and publically stated that we are in a global bull market since January of 2009. For all of 2009, friends and family all thought I was crazy. I figured I’d catch a ride on the way up by buying the most undervalued companies in the world. I bet that over the last 18 months, US listed Chinese Microcaps would march towards efficiency. As far as I can tell, this has not been the case. They’ve tended to move up and go back to where they’ve started. Great for short term traders and bad for long term investors.

My peak oil hypothesis and the FED’s monetization of the deficit will continue to send nominal prices of everything much higher. That said, right now I think we are just seeing a spike in oil — but this spike will only bolster the confidence in higher oil prices and those that bought into this are likely going to be holding on for a while. Good luck if you think we’ll dip back down as far as we spiked up. I don’t think we’ll ever see oil prices below $80 at this point in time.

Right now, corporations are booking all-time record profits, commodity prices are rising, and things are getting better. It’s a great time to be involved on the long side. That is, unless you have been involved with the most undervalued sector in the world: Chinese Microcaps.

All of this upside — it appears for the most part has passed me by. If I was driving down the highway, it would be as if the lane that I am in is moving in reverse and everyone else is flying by me waving. Does this mean I should switch lanes or pull over to the side of the road at this point in time? I don’t believe so. I think my lane is about to become the fast lane. It’s so bad that there are profitable companies out there right now listed on the NYSE that are selling at less than cash – total liabilities and are in the process of buying back their stock at these depressed prices. Frankly, they can buy back more than their entire market capitalization and pay off their debt and still have “free money” leftover. You better believe that these kinds of prices are not here to stay. There is a certain point that I look for of extreme pessimism that after which I can confidently state that the bottom is in. The only thing I’m really good at is calling bottoms, frankly.

What this sector needs is a leader. This sector needs buybacks. This sector needs dividends. This sector needs certainty in audits. This sector needs institutional investors. This sector needs more transparency. This sector needs mergers and acquisitions. This sector needs a single stock that goes from the bargain bin to performing in line with where its fundamentals would put it. This sector simply needs a shot of confidence. Over the last 18 months, the confidence in this sector might as well be a deflating balloon. Everyone and everything is suspect. For you to confidently invest, the present sentiment is that the company needs 10 independent audits and you personally need to go withdraw their cash to make sure it exists and then redeposit it back into the bank. You also need to question all of their customers and independently verify the legitimacy of all of the payments that go to and from the company. On top of all of this, you need to be rich enough to buy the entire company at the current price, because the market apparently is willing to sell you all of their shares at the current price, and if they don’t have shares to sell you, they’ll sell you them short.

Frankly, I don’t care which company decides to lead the charge out of the dark storm cloud that encompasses the land of Chinese Microcaps. It’s going to happen eventually. I have a feeling that it’s going to happen around the 2 year anniversary of the March 2009 market bottom. I also have a feeling that the company leading the charge is also the innocent victim of a multitude of short pieces recently.

How can I think all of this? Some people structure their mental framework with the axiom that if they buy something and it goes up in price, their investment hypothesis was correct and that if it subsequently goes down in price, they were wrong. I believe that this is incorrect and is simply a confirmation bias — whereas I believe that if you thought it was a good deal to begin with, and nothing about your fundamental investment hypothesis has changed except for the entry price, that the market is simply offering up higher future returns to those that were more patient than you. That said, you must constantly re-evaluate your investment hypothesis as new information enters the picture that makes you question the validity of its various components.

What is happening right now? One instance is a company that is forecasting growth at 30%+, has an earnings multiple of less than 5 and is announcing blowout record earnings. The stock price responds by dropping 50%. Is this rational? Heck no. Was the price rational to begin with? Of course not. If I were to buy and hold this company for 5 years would I outperform the general markets? Of course. That doesn’t even take into account multiple expansion. We’re talking more than 1000% return for the extremely patient.

By the way, in the market I invest in, I have seen absolutely no multiple expansion. I continue to believe that this is a buyers’ market. There is a huge demand for access to capital coming from China and there is practically no one trading in the US markets that wants to own these companies. I have many friends that have completely sold out of Chinese equities because they aren’t comfortable with the numbers. I have friends that are betting only on volatility and refuse to go long or short. And then I have friends that, like myself, believe we have identified some real, tangible value and are holding onto it with our dear lives against the overwhelmingly depressing hopelessness that has ransacked the entire sector.

It can’t get much worse, and then it does. That’s been the theme. Pessimism is certainly overwhelming optimism. Sell on good news! Get out while you still can! In my opinion, it can’t get much better — if you’re a buyer. As for the general markets? I haven’t the slightest idea in the world. If Chinese demand for commodities or demand in general starts to drop, that could signal that it’s time to move to the sidelines and wait for a huge crash. That said, the FED and global governments everywhere seem to be supporting higher prices of everything these days. Take a step back and look at things from the perspective, what would I do if I had to pick stuff to own for 5 years? In my opinion, it’s still going to be a select group of these incredibly undervalued Chinese Microcaps.

Stocks that I like right now for a 5 year hold include but are not limited to: CNAM, CCME, LPH, NEP, SBAY, CCCL, WKBT, TSTC, CEU, CPQQ, BSPM, SKBI, NEWN, YONG, CHNC, BWOW, CHBT, UTA, GHII, CIHD, GCHT. Below is my brief analysis.

CNAM – On a pro-forma basis, this is one of the strongest names to own with the rampup of their facility that came back online in mid-December.

CCME – We are seeing short attacks on a daily basis. Most of that argument will be seen as retrospectively foolish assuming that the 10-K audit comes back clean.

LPH - Longwei is about to increase their earnings per share by doing an EPS accreditive acquisition in the next 6 months.

NEP – Their latest acquisition is going to result in future cash flows that are incredibly large and go up with oil prices, which I think are heading up over any given future time frame.

SBAY – They currently delayed their recent filing because PWC is getting hands on — and that’s for the 10-Q. By September their ttm EPS should be $3+.

CCCL – Company is real and is certainly very cheap.

WKBT – The recent offering was to pay liabilities that could only be paid via a share offering. That’s why there was an offering. This is the company that I mentioned previously that dropped 50% on blowout numbers.

TSTC – Their A/R are huge and very credible. We should start seeing significant cash flows rolling in from their A/R here shortly.

CEU – Cash was proven to exist. Company is trading at less than net cash and is growing.

CPQQ – Breaking into a huge industry. Very cheap, lots of room for growth.

BSPM – Biostar has Mazars as an auditor. I respect that.

SKBI – Recently upgraded auditors to Crowe Horwath.

NEWN – Good auditor and makes batteries for Apple products.

YONG – KPMG as the auditor. Shorts can’t even write legitimate hit pieces against Yong, which is growing at roughly 50% a year.

CHNC – I imagine that only the stock price is all that is keeping this from a NASDAQ listing.

BWOW – Incredibly cheap based on their guidance. I figure that the earnings are going to be variable given the industry.

CHBT – Been accused of fraud and the put premiums are high. I’m looking at selling puts here as well.

UTA – Another company accused of fraud that I believe is real.

GHII - The CFO hasn’t sold a share, ever. Also, this one is beyond jokingly cheap.

CIHD – I like Mazars as the auditor.

GCHT – Deloitte is the auditor and everyone I’ve talked to who is familiar with the company says good things.

You can be certain of one thing. I will continue to do my best to ensure that uncertainty will certainly work for me.

CBEH end of 2012 would be

$2 EPS ~ $103M net income
$5.73 in cash
… and their return on invested dollars is roughly 33%, payback period roughly 2 years.

so for every $1 they invest, they get $0.33 the next year and $0.66 the following year.. following year repeating

so, you figure at any point in time they could convert $1 in cash to $0.66 in earnings 2 years later.

so right now after all expense they have $88.3M cash – $13M for working capital (88.3 – (50-37 for hainan)) = $75.3M cash to work with that’s not tied up.

that’s $1.44/share

so you figure if they start converting that.

right now their eps for 2011 is roughly $1.33 and for 2012 is $2.00.

if they convert $1 of cash to eps, they get

$1.33 eps 2011, $2.33 eps 2012, $2.66 eps 2013

if they convert next years earnings of $2 into eps.

you get $1.33 eps 2011, $2.33 eps 2012, $3.33 eps 2013, $4 eps 2014, anyway you see how this goes.

CBEH – FD share count 2011 eps

sept 30 2010:
43.96 mill
2.1+3.5 (capital raise)
1.1 + 1.7 (warrants)
=
49.56-52.36M shares

cash:
79M sept 30 2010
15.3+24.7 (capital raise)
7.65+12.9 warrant
=
119M-$139.55M+12M for Q4 earnings-25.7M spent in Q4 for acquisitions = $125.3 Right now – 37M for hainan = 88.3M of cash after all of the planned expenses.

Management expects to report sales of $435 million and net income of $53.5 million for the full year ended December 31, 2010.

that is EPS of $1
Cash of $2.39 (End of 2010 with capital raises – spent Q4)
Stock Price $6 (current)

for 2011 i’m figuring that
cash – 37M for hainan
435M of revenues + (below)

40/140M of revenues from hainan, 84M 2012 140M 2013
45M chongquing
21M new facility in Tongchuan

x

.128 net margin (this is actually off.. and is a lowball estimate upon reflection within the 15 minute guideline)
$70M Net income
=$1.33 EPS
=$3.73 in cash

that would be my proformas

cash analysis continued

To be honest, I just stopped caring about putting words along with these price ranges and submitting it to SA. It’s just not worth it to me. I mean, I don’t own them, what’s the point, right? When there is no point, I don’t put in much additional effort.

those can be found here and here

http://seekingalpha.com/article/246999-pricing-the-dow-jones-industrial-average-part-1

http://seekingalpha.com/article/247512-pricing-the-dow-jones-industrials-part-2

MRK – $35-$40

MSFT – $28-$35

PFE – Terrible with acquisitions, building an empire instead of shareholder value. $15-$20

PG – $60-$70

T – $25-$35

TRV – $50-$60

UTX – $75-$85

VZ – $35-$40

WMT – $55-$65

XOM – $80-$95

Sad part is that after doing this analysis I felt really generous. I didn’t take into account the systemic risk of peak oil, high inflation, or an event that is otherwise unpredictable. Maybe I was sad because I look at companies at 1/5^th the price of these for earnings growing 5x as fast? I dunno. Glad I got to recalibrate my mental framework though.

Disclosure: I don’t own anything mentioned, except lots of products that these companies make. It’s impossible not to.

CCME: The Biggest Short Squeeze of 2011
By Glen Bradford
We are about to see the largest short squeeze of my lifetime. The current short position? Roughly $125M has been sold short on a company that is trading around $1B that analysts project to make $140M FY2011 that grew revenues over 100% last year.
Usually, shorts try to make money when stocks go down basing their short position on the company being overvalued. Unfortunately, when the underlying company is worth several multiples of where it is currently trading and adding to the short position only inspires and enables more buying, not less — you have the makings of an epic short squeeze. So, what are the shorts betting on? They are betting that CCME is a fraud.
Are they a fraud?
1. CCME has been fully vetted by Starr Int’l for 4 months (Starr Int’l headed by Hank Greenberg). Also on the board of directors and checks monthly numbers through Dorothy Dang.
2. CCME has been independently vetted by Global Hunter – 3 months.
3. CCME has a top 4 auditor Deloitte.
4. They are #1 on the Forbes China List of Small-to-Medium Sized Companies with the Greatest Potential 12/11/2011.
5. Their Zack’s Rank is #1.
6. Investors Business Daily gives them top marks, best marks out there actually.
7. Their CFO is a former auditor of PWC (Price Waterhouse Coopers).
a. Their CFO just bought $1.5M of stock.
8. Dividend policy starting in the next 90 days.
9. Signed contracts with Apple, Nike, Sony, Adidas, Toshiba, etc.
10. Independent investors have visited the company and not found indication of fraud.
11. Mike Koza, who has averaged 33% a year for almost 10 years, owns CCME.

12. Institutional holders include Goldman Sachs, Vanguard, and CALPERS
Is this a good deal?
1. Fully Diluted Market Capitalization of $1B.
2. Last year revenues grew over 100%.
3. Projected to make $140M FY2011.
4. Routinely conservative/beatable guidance.
What about the shorts?
1. The shorts are now naked shorting as evidenced by RegSho.
2. The quantity of shorts over the last 6 months has gone from around 1 Million to over 6 Million, an increase of 600%. Meanwhile, the stock has gone from around $10 to $20. So, I am assuming that on average they are underwater.
Technical Analysis?
1. Bullish TA: Cup and Handle

Lastly, I want to talk about how the mind of an investor works. When a stock trades in your direction, you feel good about it and don’t think much about it. When a stock trades against you, however, you tend to re-evaluate your investment hypothesis and consider changing your mind. My perspective is the following. If CCME goes to $25 and you have 6 million shares short that are all underwater — are the shorts going to short more when there are no more shares available to short or are shorts going to reconsider their investment hypothesis?

Disclosure: I’m long China Media Express. Wouldn’t you be if you felt this way?

GPLB follow this string http://investorshub.advfn.com/boards/replies.aspx?msg=58001919 apparently gplb is owned by one bio, and they shouldnt be trading?

CIHD – p/e of about 2? pretty cheap. 1/2 of BV
CHME China Medicine – like this one

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=58815995

My picks that I sold out too early…………MPG, RAS, PCE.
PCE should come back down to earth sometime.

CGYV $1.25 – huge $75m contracts – triple their annual revenue (to be

delivered by year end) – thats double their market cap, follows a 34m in

contracts announced in the fall

northenlightsk05

KRTF .10x.20 Reverse Merger just went through with Shandong Zhidali

Industrial Co., Ltd., a People’s Republic of China Corporation. Shandong

Zhidali manufactures electronic equipment in China. They had been working

on it all year.

This hasnt really traded much since its inception.

Outstanding shares are relatively small at 12,667,533 so has room for a

Forward Split.imo Plus a good chunk is help by insiders.

Website

http://www.zhidali.cn/en/

Shandong Zhidali Industrial Co., Ltd., a private enterprise, was founded

in 2008 with a registered capital of more than 20 million Yuan.

Headquartered in the Economic Development Zone of Tengzhou city, Shandong

province, Zhidali covers an area of 59,900 square meters. Zhidali has

introduced advanced R&D, manufacturing and testing equipments, design

softwares. And supported by experts in the fields of electronics,

electrotechnics, softwares, mechanism, industrial manufacturing, hardware

& plastic and metal materials, the company has set up a series of

operating systems, including management, research, manufacturing,

marketing and services systems. We also composed strict testing systems

for our products, and our products are all in compliance with many

international standards like ISO9001, ISO2000 and compulsive

authentications set up by Chinese government.

Zhidali has a complementary portfolio of products, which contains DVB-C,

DTMB and MMDS digital TV set-top boxes, mobile digital TV multi-media,

high definition media player and electrotechnic products. Zhidali’s people

are all devoted to make Zhidali a worldwide well-known name.

http://www.zhidali.cn/en/list.php?fid=2

April 2010 B & D represents Shandong Zhidali Industry Co., Ltd. as PRC

legal counsel in its RTO listing on OTCBB.

http://www.bdlawyer.com.cn/en/service_history.asp?Page=2

Let the short squeeze begin! Again.

http://www.nasdaqtrader.com/trader.aspx?id=regshothreshold

If you’re like me and you like stocks, you probably get a lot of phone calls/messages about people that missed a buying opportunity and wonder if it is still a good time to buy. For CCME, I have a friend who keeps asking me on a daily basis what I think about it. So far, he’s missed out on tens of thousands of dollars by simply not buying any. This particular friend keeps asking me if he should buy. I keep telling him that he should. He continues to do nothing. This is a message to anyone out there who is wondering if they should buy CCME. Oh, and with CCME on the RegSHO list, now the shorts HAVE to start buying back. How fantastic is that?

Seekingalpha keeps retitling my articles to make them sound more reasonable than the titles I send in. There recently have been two authors who have painted very rosy pictures of CCME and in my opinion analysts’ estimates are still far too low.

Is China Media Express a Top Tier Company? You Decide

China MediaExpress: The Most Undervalued Stock Poised to Profit From China’s Emerging Middle Class

Company estimates and forecasts are still far too low. Everyone is being unreasonably picky. Anyone in the know knows this and I still find myself laughing when CCME drops and I’m able to buy more at lower prices. China Media Express is one of those stocks that people will reflect on and use phrases like, “Shoulda, Woulda, Coulda.”

I’m here to say, you should, you might as well, and you can. Honestly, my discounted cash flow valuations value CCME north of $100. Are my models reasonable? I’m using them to price the Dow Jones Industrial Average and for the most part I’m borrowing them from Ben Graham and Peter Lynch.

I still don’t understand why on a nominal basis CCME should be trading less than Focus Media (FMCN). Because that doesn’t make sense to me, I have purchased a lot of CCME. When things don’t make sense, I vote with dollars in the direction that things make the most sense to head.

I love that this space is gaining so much negative attention recently that people are starting to blog on things that they don’t really know much about:
Reverse Mergers: Made in China, Worthless in the U.S. It’s the same old story. Hear something bad, restate it somewhere else. That’s the beauty of how easy it is to become an expert on pretty much anything. Sure, you could be wrong, but it doesn’t really matter because you’re not putting your money where your mouth is. Also, nobody is going to hold it against you if you were. Sure, there’s fraud. Sure, china is building things at an unsustainable rate. But you have to realize that negativity is more attractive than optimism and that there is a lot of money on the line betting short, and they have a vested interest in making investors question the soundness of their long investments. I for one love the shorts as they enable me to get bargain bin prices on some great finds like CCME.

I think that once the large shorts out there start to realize that this Chinese Microcap space isn’t as littered with fraud as they think it is, mostly this realization forced upon them because they’ll soon find themselves with margin calls on bets that they’ve kept upping the anti hoping that things will eventually trend in their favor, things will really start to get juicy. What do you know, maybe a company growing over 30% might actually have a price tag that reflects something like that?

I’m looking for someone who would be interested in working together to assist in writing articles for free covering the S&P500 — and that’s just for starters.

I’ve tried to do this myself, but the task is far to overwhelming to actually complete that I haven’t even gotten started, not to mention that I’m only interested in:

1. Pricing all of the companies individually (I can do this easily in very little time). I have done this before and that’s how I called the market bottom in 2009 in the USA/Russia and the Hang Seng Bottom in 2008.

2. At the end summarizing our findings using sector comparisons, etc.

3. Helping someone who is on the sidelines get a lot of publicity.

What you’ll get from this:

1. You’ll see first hand how I price companies very quickly.

2. You’ll be put up along with myself as dual authors of this series.

3. You’ll get the experience of quickly pricing the S&P500.

Odds are we will probably start with the DOW 30.

What you’ll be given:

I will rapidly price companies and throw out price ranges and garbled data that I think is somewhat relevant for each company.

At that point, I would expect that you turn this into an article that is snappy, concise, witty, and very laid back.

I figure the most qualified people for this are readers of my blog. Second to that, I will be polling University Students.

At the end of this, I think we could easily give a better EPS estimate for the S&P500 than anyone else out there. How hard can it be?

The timeline start to finish would be 2 months. We’d be going at a pace of about 10 companies a day. I’d probably have a head start on pricing these and then we’d go from there to see how things progress.

Well, that’s it. If you’re interested, let’s do this.

Most people would consider this impossible but… we’ll show them.

What are you waiting for?

Top of the Short Interest List – CCME

China MediaExpress Holdings, Inc. topped the most viewed list at #1 on the List of Short Interest over at Nasdaq.com (NDAQ). The day before, it ranked #1 on the Forbes China “Up-And-Comers” list of “China’s best small businesses.” It was the best of times, it was the worst of times.

China MediaExpress has already signed contracts with many prestigious global and Chinese domestic companies or their distributors such as Apple (AAPL), Sony (SNE), Toshiba (TOSYY), Adidas (ADDYY), Nike (NKE), Samsung, Phillips, Skyworth, Supor and others, to feature their most popular products on SWITOW and is expecting others to join the platform.

I just wanted to see if I could find any reason at all to sell.

My friend who runs the Trading China Website puts it best: The risk here in Chinese Microcaps is not that one or two China stocks get hit, but that some kind of scripted action, involving Barron’s and TheStreet.com, Greenberg and CNBC, a bunch of newly founded “research firms” and several bloggers like Tyler Durden, act in concert to successfully kill demand for China stocks. And with an expected drop in the general markets in the second half of January, our stocks might drop twice as hard and they all will celebrate their successful attacks, tell the world how right they were, and secretly lock in their profits. They will pose as saviors who bring justice to fraudulent Chinese communists, and save good, innocent American investors from falling into a “trap”. Every single case of fraud, and there will be more, makes their case stronger. It’s like a game, in an environment like this it just seems too easy to play, and they have jokers up their sleeves, like the announced SEC investigation.

What my friend doesn’t realize is that I know first hand that the news staff at TheStreet.com is not permitted to hold positions in stocks. I am not sure about the rest of them. That said, I’m not on the staff at TheStreet.com. I’m a guest contributor and receive no compensation. I do this for fun/free and wouldn’t consider it if I wasn’t allowed to own stocks… as owning stocks is probably my favorite thing in life right now.

As for CCME:

1. It’s a dividend stock.
2. It’s a growth stock.
3. It’s a value stock.
4. It’s a short squeeze.
5. It’s marginable.
6. It’s optionable.

I would point out the following (this is my opinion, and I could be wrong, always like to reserve the right to be 100% wrong, this is just my perception): It appears to me that Herb Greenberg reverse engineers his mental framework and incorrectly uses the scientific method. That is to say, he starts with the conclusion that all Chinese companies are fraudulent and then works backwards to develop negatively biased arguments against them, some of which he makes up or perpetuates from other sources that have made it up. Good logic does not start with the conclusion in mind that every Chinese company is a fraud and work back from there to come up with allegations. You must first start with the hypothesis that Chinese stocks are fraudulent and then seek to disprove it or you must start out with the hypothesis that Chinese stocks are real and try to disprove it. But, starting with what you perceive to be the conclusion and then working backwards to develop your argument to support that conclusion is the wrong way.

It’s also worth noting that Herb Greenberg’s pessimism is priced into the stocks. They come at a discount because nobody believes they are real, except the companies, the auditors, and who will likely become the next generation of “successful investors.”

Disclosure: Bradford is Long CCME