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goldminingXpert (29.52)

Yongye Research

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16

February 06, 2011 – Comments (34) | RELATED TICKERS: YONG , MTEX

Here´s my article on Yongye. I don´t believe the company´s growth story (I think the company is quite real, but I doubt it is as large or successful as it claims). A lot of smart people do believe the story. If you own the stock, please do your own research and think about whether the story makes sense to you or not. I have never traded this stock and have no position now. As Citron says, ¨Cautious investing to all.¨

34 Comments – Post Your Own

#1) On February 06, 2011 at 10:15 PM, valunvesthere (< 20) wrote:

According to Yahoo Finance as of September 30/2010

Top Institutional Holders

VANGUARD GROUP, INC. (THE)

1,105,329 shares %2.24 $7,803,622 Sep 30, 2010

Top Mutual Fund Holders

VANGUARD SMALL-CAP INDEX FUND

500,644 shares %1.01 $3,534,546 Sep 30, 2010

VANGUARD TOTAL STOCK MARKET INDEX FUND

244,712shares %0.50 $1,727,666 Sep 30, 2010

VANGUARD SMALL CAP VALUE INDEX FUND

154,587shares %0.31 $1,091,384 Sep 30, 2010

VANGUARD SMALL-CAP GROWTH INDEX FUND

148,018 shares %0.30 $1,045,007 Sep 30, 2010

Valunvesthere

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#2) On February 06, 2011 at 10:54 PM, TMFRhino (98.07) wrote:

goldmingingXpert,

 Why not try writing some articles for the Fool directly? We have freelancer roles constantly posted on the site. Especially if you're willing to write about individual stocks, I'm sure people would love to read the contrasting sides to each story.

 FWIW, I own YONG. I do enjoy counter positions, however.

 -Eric  

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#3) On February 06, 2011 at 11:17 PM, goldminingXpert (29.52) wrote:

I´d be happy to apply as a freelancer. What sectors or types of companies need more coverage? I would not, for example, make a good tech stock analyst.

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#4) On February 07, 2011 at 8:38 AM, Valyooo (99.39) wrote:

What are your sources for the story of the CEO's past?

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#5) On February 07, 2011 at 9:09 AM, russiangambit (29.33) wrote:

http://seekingalpha.com/article/251103-yongye-international-why-this-stock-s-story-is-too-good-to-be-true

Well, GX  it looks like you getting quite a bit of heat for your "evil" short.

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#6) On February 07, 2011 at 9:22 AM, goldminingXpert (29.52) wrote:

I'm not short YONG, Russian. And people can post whatever comments they want.

The company has responded, you can find it here: http://www.prnewswire.com/news-releases/yongye-international-responds-to-misconceptions-in-recent-article-115477964.html

Please do your own due diligence rather than merely trusting my word or theirs.

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#7) On February 07, 2011 at 9:44 AM, russiangambit (29.33) wrote:

#6 - I am not palying small cap chinese stocks either way since there is no way to tell whether one is a fraud or not. I remember China Sky, which went from being frau   and then not-fraud and then back 3 times. It is all about timing of your guess. And there are always plenty of people defending both sides. You could be right all the way about the company and still be very wrong on the trade.

 

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#8) On February 07, 2011 at 9:45 AM, russiangambit (29.33) wrote:

#6 - I am not palying small cap chinese stocks either way since there is no way to tell whether one is a fraud or not. I remember China Sky, which went from being fraud   and then not-fraud and then back 3 times. It is all about timing of your guess. And there are always plenty of people defending both sides. You could be right all the way about the company and still be very wrong on the trade.

 

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#9) On February 07, 2011 at 10:06 AM, Valyooo (99.39) wrote:

GMX,

Where would I find the research you found?  I do't doubt you, i am curious as ot how I can find them myself.

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#10) On February 07, 2011 at 10:15 AM, goldminingXpert (29.52) wrote:

I linked to everything I used in the Seekingalpha article. CEO stuff came from a China Daily article.

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#11) On February 07, 2011 at 11:23 AM, TSIF (99.96) wrote:

Unlike the other China company's under fire, at least Yongye had a rapid fire answer that was a little more than the typical, we are investigating and deny the report and will report back "later" with more detail.

Good food for though GMX.  Thanks for the quick notice on CAPs so I could time my market buy order this morning.  The market reacted stronger than I thought it would on your article. Buying on this type of sellings is not my normal mode of operation and I don't recommend it, as in most cases reaction can take a long time to wind down and sentiment will run rampant. Stocks that are questioned, especially Chinese reverse mergers that sound too good to be true, are usually stagnate at best for quite some time.

I would expect extra pushback on this one here on MF as this is a MF recommended global gains stock and has been featured in Million Dollar Portfoilio.  In this case, with the investor loyalty so high, I expected some rebound, but it's hard to say if it will hold.  Investors are spooked.  Uncertainty is not good. 

This certainly doesn't make their call the right one, but similar to your calls on Rosetta Stone, you will get more than the usual "feedback"!

The reply to the employee count seems reasonable. The magic formula seems to have some positive replies as to why it will work. That the formula is probably not that "secret" and the business can be replicated deserves some focus. I'll also focus more DD on receivables. Even though they claim most of it was collected, other fertilizer company's have stopped issuing credit in China.

TSIF

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#12) On February 07, 2011 at 11:30 AM, goldminingXpert (29.52) wrote:

TSIF: Yeah, quick, detailed and informative response from them. I'm doing my own follow-up research on their rebutal, and I will talk with the company later this week. Unlike RST, where I know the product doesn't work as well as promised, I can't say that for sure about this one. I started my research on YONG thinking it was a sham, and the more I look, the more I think it is merely overvalued. We'll see what the company says when I talk to them.

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#13) On February 07, 2011 at 11:57 AM, TSIF (99.96) wrote:

Considering that Chinese company's are typically low P/E's and growth is difficult to pin valuation to, then I did question Yongye's valuation at $9 last November, but I liked the chart play when it dropped to $7.  $7 to $9 on a regular basis.   Institutional holdings were higher than most of the other ones and without sufficient time to do my own DD, I had felt that a small stake was low risk, reasonable reward after Global Gains started following it. I'm starting to focus on 10-15% possible one to two month hits on some of my plays.  Buy and hold isn't quite dead in my retirement fund, but it's pretty much dead in my trading account.

Keep us updated!

Thanks!

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#14) On February 07, 2011 at 12:07 PM, goldminingXpert (29.52) wrote:

I think your short-term trade may work out. Since I'm not planning to write anything else of a negative slant (I'll report whatever results of my discussion with the company and subsequent research of it, but I anticipate they'll do a reasonable job defending themselves), and I'm not aware of anyone shorting the stock or writing about YONG critically beside myself, I doubt it will fall a lot farther in the short run. In the long run, the company needs to produce consistent earnings, cash flow, and keep AR under control if it wants to be valued more highly. I'm skeptical as to whether it can do those three.

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#15) On February 07, 2011 at 12:38 PM, Schmacko (55.55) wrote:

seeking alpha commenters are harsh...

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#16) On February 07, 2011 at 12:45 PM, goldminingXpert (29.52) wrote:

and they all have <5 comments. It doesn't take long to set up an account, bash somebody, and never return. All the commenters with 20+ comments are supportive of me. In the end, the market, not commenters (or writers like myself) on Seekingalpha is correct.

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#17) On February 07, 2011 at 1:03 PM, JaysRage (88.90) wrote:

+1 for a nice article.    I've been in and out of YONG several times.   It does tend to move up and down roughly between 7 and 9.    The AR is generally explained by the cyclical growing season.   Fertilizer is a very seasonal industry and farmers pay when the crops come in.    The high margins are generally attributed to being relevent in rural China, where competition is scarce, loyalty is fierce and a near-monopoly is possible from locality to locality.   That said, I liked your article. 

 

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#18) On February 07, 2011 at 1:07 PM, goldminingXpert (29.52) wrote:

Thanks Jay. As I said, and will continue saying, there is no smoking gun here. Just enough things that make me go "hmmm" to result in the article I wrote. That said, I've been impressed with the company's responses, as the above replies show.

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#19) On February 07, 2011 at 1:19 PM, griderX (97.09) wrote:

GMX -

Mind if I ask you a personal question...since you have no direct intrest in YONG...did you get paid by a third party to write this piece?

In addition, you mentioned "Author note: This was not my original headline, I didn't submit the phrase "Too good to be true."  Did someone at SA change your article?  Where there more changes we should aware of?

Thanks,

GriderX 

 

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#20) On February 07, 2011 at 1:21 PM, TSIF (99.96) wrote:

I think you're getting all the fame/blame for Brean Murray's downgrade that timed with your article. I don't see Yong rebutting it. The weather in China has been severe. If you'd included the loss of revenue from the extensive droughts in your article I wonder if YONG would have addressed it or skipped over it!  :)

Yong might be dead money if the drought is as extensive as indicated.  Bloggers have been wondering why Yongye only has a P/E of 7, but that's actually pretty generous for an Ag with cyclical business and at the mercy of Mother Nature.

The next week should show a trend, it will be interesting to see which way it goes.  I'm down Neg 5 on several of my downthumb CAPS plays that I'd like to get out of.  Can we collaborate on a few more articles?? 

;)

 

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#21) On February 07, 2011 at 1:31 PM, goldminingXpert (29.52) wrote:

griderx: no one directly paid me to write the article. I am compensated by Seekingalpha to a small degree, but they do not care what position you take on a stock.

The drought is (or at least should have been) baked into the stock. It was the given reason for the stock's softness in January despite the cash flow/AR report. I'd also note that other Brean activity hasn't generated nearly this much volume -- this will end up being the 2nd-busiest volume day in he company's histor. Similar high volume hasn't been noted at CGA, or CAGC,where you'd expect it.

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#22) On February 07, 2011 at 1:35 PM, goldminingXpert (29.52) wrote:

Sorry for the typos above, my computer is acting strangely, I corrected them but my corrections disappeared when I posted. Also, the last piece of my reply went away. Girderx, they changed some formatting stuff and a couple of words/grammar things. They didn't change anything of substance but the headline.

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#23) On February 07, 2011 at 1:55 PM, griderX (97.09) wrote:

Thanks for the feedback.  It's a good start....it also appears that you learned quite a bit from this analysis...hope you can use the positive feedback to make the next one better.

 

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#24) On February 07, 2011 at 3:25 PM, Option1307 (30.06) wrote:

Holy geez those responses are ridiculous!

Seen when did people get so pissy over counter ideas etc.? I mean seriously, isn't that the whole point of TMF/SA/etc. to share ideas and opinions in the hopes of making us all better investors.

I don't know anything about YONG but I ceratinly like seeing both sides of the story before I make an investment one way or the other. 

+1 for the article, it's at least food for thought.

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#25) On February 08, 2011 at 2:52 AM, diamondsarerare (< 20) wrote:


YONG is supposed to be a Fool's global gain recommendation: http://www.fool.com/shop/newsletters/25/f5706307-cfe2-49d1-bcec-98b756da0436.aspx and authors have claimed that they visited the company. I would love to hear back from our Fool authors on what facts did they find that they thought of recommending this stock. I haven't seen a piece of evidence from our beloved stock pickers... Your article is a big shot at their credibility too  :)

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#26) On February 08, 2011 at 7:24 AM, nilesgold (23.84) wrote:

I think you are probably getting a lot of heat for a few reasons.

First and foremost YONG has been a long-time Global Gains pick that has been held in extremely high regard for quite some time by the service as well as subscribers.  The performance of the stock has been disappointing over the last 12 months even before it fell down to the $6.50 range yesterday. People are frustrated and they are lashing out.

Add to that your comments in regards to the # of Yongeye stores comes across as though you don't know the company very well.  Those stores are branded stores, Yongeye doesn't own them, which is how they can have so many in such a short amount of time.

@TSIF - If the company isn't a fraud, on what basis are you determining that it is overvalued?  The only metric you mentioned was PE ratio.  You can't actually believe that a PE of 6.5, and forward PE of 4.63, for a high growth stock is anywhere close to overvalued?

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#27) On February 08, 2011 at 9:07 AM, TSIF (99.96) wrote:

nilesgold, if you put Yonge in context then I can make a case that 6.5 is near valuation.

1. Agriculature stock in China. Unusual Land holding rules.  Seasonality, risk to weather,

2. NO foreign limitations to entry as their are in other Chinese sectors.  30% of their revenue is ONE customer, (5 make up 82%).  Leaving them very vulnerable.

3. Less than a 2 year stock history,   Up by 6X in 2 years.

 Fair or not, similar equities are languishing around a 3 or 4 P/E.   You have to "normalize" your valuation against sector and location for foreign equities. While this might have a P/E of 8-10 in the US, you can't look at a P/E on a global company and compare it to a US.

I also said that I thought $9 was overpriced back in November, but I've been a buyer at $7 wtih the expectation that even if the drought affects them as extensively as Murray indicates that even a 50% reduction in growth would still leave plenty of margin.  The growth potential, with institutional investing, with transparency is how Yongye can partially beat their environmental factors.

Good luck.

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#28) On February 08, 2011 at 9:58 AM, nilesgold (23.84) wrote:

I can't fully respond to your points right now, but suffice it to say for the time being that you are picking and choosing the "context" in which a 6.5 PE is near valuation, which allows you to only mention items that might warrant a low valuation, while omitting items that would warrant a higher one.

 As for your points...

1. I'm not exactly sure why being a Chinese Ag stock or unusual land holding rules are negatives for YONG?

2. I'll have to check this later but I believe the company made moves in the last 6 months with their biggest distributor so that their revenue is not as concentrated as it once was.

3. Lots of companies have been public for less than two years with large share price appreciation, that has no bearing on the value of a company and I don't see how it has a significant affect on stock price.

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#29) On February 08, 2011 at 11:07 AM, TSIF (99.96) wrote:

My major point is that China equities need some normalization factors applied, again fair or not.

On my minor points,

1. Agriculture in general will have a lower P/E because of the other reasons I cited. (seasonality/weather, etc)

2. Beside concentrated, again, no barrier to entry as there is in other Chinese sectors.

3. Again, China with US listings.

You've done well off Yongye. I have no reason to attack it or convince you otherwise.  I hold Yongye at these levels. I'd only suggest that you use geographic, political, regulations, and historical valuation applied to perceived governance in this region on your upper boundry.

Good luck.

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#30) On February 08, 2011 at 11:18 AM, goldminingXpert (29.52) wrote:

Company responds to the Brean downgrade. Give them credit for persistence, if nothing else: http://www.prnewswire.com/news-releases/yongye-internationals-shengmingsu-branded-nutrient-product-benefits-northern-chinas-drought-stricken-crops-115553914.html

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#31) On February 08, 2011 at 11:57 AM, TSIF (99.96) wrote:

I expected this type of response, but am glad that Yongye supplied it.  Company's must be willing to address all issues, real or perceived. If additional drought resistance results in sales in those areas where the drought is "marginal" and regional governments are willing to supplement the farmers then this could help to maintain thier 50% yoy target.  In a severe drought, no plants are going to grow, so no sales will be made. Hopefully the drought condition mitigates soon. These areas in China have no other source of income. 

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#32) On February 08, 2011 at 12:47 PM, goldminingXpert (29.52) wrote:

I'll be speaking with the CFO tomorrow and writing a follow-up piece giving the other side of the story. If you have any questions for him, share them here and I'll consider passing them along.

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#33) On February 08, 2011 at 5:02 PM, griderX (97.09) wrote:

CFO Question:  Chinese companies have been under increased scrutiny as of late, can you give us your feedback on what can be done to increase transparency of financial reporting and what YONG is doing to bolster it's creditability with the investing public?

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#34) On February 08, 2011 at 11:14 PM, Option1307 (30.06) wrote:

writing a follow-up piece giving the other side of the story

Looking forward to reading what they say out of curiosity if nothing else.

I feel bad for all the heat you have taken, but damn some of those commentors on SA are hilarious in the sense that they are soooooo stupid. So thanks for the laugh!

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