Be very afraid of this type of Chinese stock
August 30, 2010
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RELATED TICKERS: CGA
, FEED
, SPU
In the past here on my blog have discussed I have wondered aloud if any high quality Chinese companies are essentially babies that have been thrown out with the proverbial bath water by investors who are afraid of all of the scams and funny business that been uncovered at many companies from the country.
See Post: Have any Chinese babies been thrown out with the fraudulent bath water?
The multiples to sales, earnings, etc... for many small Chiese companies look almost too good to be true. Perhaps it's because they're not. As mind-boggling as some of the metrics for these companies are, I just can't bring myself to purchase any in real life. Heck, I haven't even touched many here in CAPS.
This week's Barron's contains a great article on just how dangerous investing in small Chinese companies, specifically ones that have been brought public in the United States via a type of transaction called a reverse merger.
The list of companies that have gone public in the U.S. is long and probably very familiar to people who read a lot about investing. It includes companies like China Green Agriculture (CGA), China Integrated Energy (CBEH), Gulf Resources (GFRE), Orient Paper (ONP), AgFeed Industries (FEED), Deer Consumer Products (DEER), CleanTech Innovations (EVCP), SkyPeople Fruit Juice (SPU), China Natural Gas (CHNG), and RINO International (RINO).
Investors should be particularly wary of stocks that have been brought to the U.S. market by Roth Capital, Barry Kitt, or Colusion IR. Companies that are associated with these three firms have particularly bad track records.
There's a whole lot of shadiness going on this these stocks. I'm not saying that some of them aren't legit and won't do well in the long-run, some probably will be big winners. However enough of them are probably scams to cause me to steer clear of the entire sector.
Beware This Chinese Export
Deej
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