Recs
October 27, 2009 – Comments (13) | RELATED TICKERS: FUQI , HOGS , YONG
Does anyone have any idea why the likes of FUQI, HOGS, YONG, etc. are all simultaneously dropping with high single digit and even double digit losses every day for the past 3 days - despite major market indicies experiencing slight declines?
The question is badly put. You should have asked how they managed to rise 300-400% above fair value.
Read:
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=219276&t=01000144602086176182
zloj,
Please define "Fair Value", how you would calculate it, and your reasoning for why those named stocks are 300-400% above fair value.
DeadmanLiving,
That may be a good reason to be cautious of Chinese stocks, but it does not explain WHY the last few days have occured the way they have.
Small cap volitility combined with profit taking is my best guess.
Well, you have a country that is going to fall apart in a few years, or, in the best case, get away with a mere economic collapse. How much would you pay for that country's stocks?
catoismymotor,
That is what i'm currently leaning towards.
I would replace the United States with China for your thesis.
errr, replace China with the United States
You guys are just being silly. FUQI is still a relatively cheap stock even by American Standards. Selling at a PE of only 13. You are seeing some profit taking, but the stock will bounce back. Lets remember that the company has DOUBLED revenue for each of the last 2 years. And will increase over the next year by around 30%. The market will recognize this and adjust the value of the stock.
Lots of things at play. Profit taking, dollar strength, small cap volatility. What I don't have in cash, I have in China. I've been weathering the storm with my current investments and looking for entry points on some of the better stocks that are getting to attractive valuations. I'm closely watching HOGS and CPBY. They are attractive right now, but I'd like to get them a little lower. I've been in and out of HOGS once already.
Don't sweat daily weekly or even monthly price movements. If you know your stock is on solid grounds, these drops (or raises) don't mean a thing. Go fishing instead or do whatever you like doing, you'll sleep better at night.
Example, YONG has been dipping for the past 3-4 days, even after management has raised guidance. Checkout the short interest shares and ratio - that should explain part of the story.
The foolish thing to do now is to SELL! RUN! when stock prices go down. Don't fall into this classic trap.
Sector rotation, from risk into quality.
P/E of 13 for a Chinese stock is way too high. given China's risk, I would never buy a company with P/E of more than 8. P/E of 5-8 is normal for Chinese companies.
Seems like Chinese stocks have been dropping while the rest of the market goes up. I suspect some managed fund(s) that specialize in Chinese stocks are dumping them. Only these funds have the volume to move stock prices like this, not retail.
Some of these stocks are going to report their 3rd quarter results soon. Could also be the volatility that surrounds this period. Could also be that funds are dumping Chinese stocks to buy hot US stocks.
Looks like I nailed the tickers on the button. Add CHNG to the list as well.
Here are a few updates since several earnings reports came out today:
1. CHNG (-28.79%) - The biggest loser by far today with a sharp drop before earnings. Many are attributing this to either an earnings leak prior to the scheduled reporting time (after-market) or rumours of a delay surrounding their liquified natural gas plant by 3-4 months. Considering EPS came in at 29 cents versus 30 cent consensus (with very consistent earnings over the past few quarters), I highly doubt it is the former. The latter could be a short-term scare -- in either case, unless the speculation becomes a matter of fact, it is what it is -- a rumor.
2. FUQI (-17.79%) - Q3 EPS came in at 0.77 versus 0.44 consensus. They raised full year guidance but failed to raise guidance for Q4. Apparently this was enough to cause 10.8M shares to change hands today (???). What was a substantial early morning gain became a terrible onslaught of high volume selling going all the way to the end of the day. Many are attributing this to technicals and market manipulation -- which may or may not be substantiated, but a growing concern.
Whats funny about all of this is. FUQI's drop came significantly after the high volume in the early morning - with prices significantly higher than previous close. The drop only gained significant traction after it broke through the break even point. Perhaps too many trying to sell out caused an overabundance of supply with not enough demand (?) -- buyers were satisfied with the initial supply of shares at high prices.
The reasoning for the drop is all speculation. In either case, it seems like a clear overreaction to me on all fronts - especially if you see the more substantiated drop for HOGS (with factual reasoning for it).
3. HOGS (-10.97%) - Q3 EPS came in slightly above expectations at 0.44. Based on the before-market drop right after the release of the report, the spotlight seems to be on the lowered guidance for the year. The reasoning? Stabilization of Hog Prices and Lowered Price Increase Outlook for Q4. The Hog price trends were in the charts for months, folks. If this came as a surprise to anyone, I'm not sure what to say.
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