By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Market Report
From Cabot Wealth Advisory, 10/5/09 Sign up for free Cabot Wealth Advisory e-newsletter
Cell phones and wireless value-added services (VAS) have taken China by storm, leaving wire line telephone service in the dust. China's major wireless companies are healthy and growing. We have great affection for China Mobile, which was a huge winner for the Cabot China & Emerging Markets Report back in 2007.
But the big telecoms are old news now, and a better place to look for growth is in AsiaInfo Holdings (ASIA), a Chinese company that offers software solutions and software protection for the big phone companies.
AsiaInfo's software suite allows customers to build, manage and enhance their communications infrastructure. The company's Lenovo-AsiaInfo alliance offers IT security products such as firewall and virtual private network services.
The numbers for AsiaInfo look especially goods, with a 92% gain in earnings on a 39% bump in revenues for the second quarter. After-tax profit margins reached 19.4%, their highest level since Q4 2008. Institutional investors are signing on at an accelerating rate—56 two quarter ago; 80 now.
The chart is volatile, but strong, with a much smaller dip during last year's storm of losses. After a long period of tightening action centering on 19, the stock may be ready to break out.
And that's what you need to look for. When ASIA breaks above 21 on good volume, it will be a good buy. It will take a little patience, but it will be worth it.
Editor's note: Paul Goodwin is the editor of Cabot China & Emerging Markets Report, the #1 ranked newsletter for five years, according to Hulbert Financial Digest. If you'd like to follow some emerging markets stocks that are making good on their potential, you should consider a no-risk trial subscription to the report. Click here for information on an introductory subscription to Cabot China & Emerging Markets Report.
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Paul Goodwin Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report
A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of
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By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Market Report
From Cabot Wealth Advisory, 3/26/09 Sign up for free Cabot Wealth Advisory e-newsletter
One of our consistent themes on the growth side of Cabot is the concept that the chart is your best friend in picking stocks. It's great when a company has growing revenues and soaring earnings. It's also nice when management has great history and return on equity is consistently high. And I could go on with a list of everybody's favorite fundamental measure or quantitative benchmark.
The market, on the other hand, just wants to know one thing: who wants to buy this stock and how much are they willing to pay? And it tells that story every day in the stock's chart.
If people want to buy a stock, the chart will show a rising price line. If institutional investors want in, advancing volume will rise above its average and will stay there for a while. If a chart shows a sideways movement by a stock in a tight trading range, it means that every time the stock drops to the bottom of the range, someone buys it, and every time it rises to the top of its range they stop. Sounds like persistent accumulation again, which is another institutional fingerprint.
So one of the best screens you can use to locate strong growth stocks—that is, stocks that people really want to buy—is to search for stocks reaching new 52-week highs.
That's the screen that brought AsiaInfo Holdings (ASIA) back to my attention. AsiaInfo sells software and IT security products to the Chinese telecom industry, and there is an interesting combination of winds filling the stock's sales.
AsiaInfo has always had a big line of business with China Mobile, the largest cellular company in the world by subscribers. AsiaInfo helps the company bill customers, analyze usage patterns and fight viruses and malware. The company has also cut deals with China Unicom for the same services plus a new Business Support System and a Business Intelligence system. With China preparing (as it has been for years) to roll out its 3G phone system, the opportunity for AsiaInfo looks great.
The chart for ASIA shows a highly volatile stock—definitely not for the faint of heart—that has been in a long-term uptrend since late 2006. The most hopeful sign is that the stock has broken through its 2008 resistance level at 14 and is flying in clear skies. And yes, the days with the biggest volume have been up days. This is a hot stock in a hot market. It's worth checking out.
Editor's Note: ASIA has not been recommended by Cabot China & Emerging Markets Report, but I'm keeping an eye on it. For most of the past year, our subscribers have been heavy in cash, preserving their profits. But Chinese stocks have been heating up, and we're very optimistic about their prospects. If you'd like to own the top-performing Chinese stocks as they rocket ahead in the next bull market, I strong recommend that you join them. To get started with a no-risk trial subscription, simply click here: Information on introductory subscription to Cabot China & Emerging Markets Report