CNinsure (CISG): Riding the growth of the Chinese middle class
By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory, 12/17/09. Sign up for free Cabot Wealth Advisory e-newsletter
In the spirit of the season, it seems fitting to feature a newborn stock, but I'll have to settle for one that's been public for a little more than two years. It's CNinsure (CISG), a fast-growing Chinese insurance company that's riding the growth of the Chinese middle class to excellent gains.
CNinsure (the name is probably supposed to mean China Insure) was incorporated in 1999, and had a hard time getting out of the shadow of China Life (LFC). But with a good mix of property, casualty and life insurance, the company is thriving in a country in which people have more and more to protect.
The company's revenues have been growing quickly, up 92% in 2007 and 105 in 2008. After-tax profit margins are also robust, reaching 25.8% in Q3.
Chart-wise, CISG made a big off-the-bottom move, ripping from 7 in May to 25 last September. Since that peak, the stock has been consolidating sideways, and is now trading in a very tight range with support at 20 and resistance at 22. Volume has been generally falling since late October, but the New Year should bring some renewed interest.
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By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory, 7/30/09 Sign up for free Cabot Wealth Advisory e-newsletter
My stock idea for today has a great-looking chart, good earnings growth and a fine story. Which means there must be a "Yes, but ..." attached. True.
The company is CNinsure (CISG), a fast-growing China-based insurance broker that offers property, casualty and life insurance in 21 Chinese provinces. The company was founded in 1998, just as the Chinese private sector was really powering up. Before the switch to capitalism, the Chinese state didn't have any use for insurance; everything belonged to the state and the state was committed to taking care of people from cradle to grave.
But people who can make money, buy stuff and leave their villages to try their luck in the big cities are a different matter, and the Cabot China & Emerging Markets Report had a huge winner with China Life Insurance (LFC) in 2006 and 2007.
True to the capitalistic ideal, here comes CNinsure (my bet is that its pronounced C-N-insure, but I wouldn't put money on it) to carve out a piece of the action. And that's exactly what it's been doing. In the last four years, revenue has jumped 331% (2005), 77% (2006), 92% (2007) and 105% (2008). Even with the Chinese economy in a slowdown, earnings for Q1 were up 36% on a 62% gain in revenues with an after-tax profit margin of 21.1%.
I've had my eye on CISG ever since it blasted off a tightening seven-month rising base in May. A base like that can generate some power, and CISG soared from below 8 in the middle of May to double figures by the end of the month. Since then the stock has built another base between 12 and 14 before another blastoff in mid-July.
The "Yes, but" is the stock's trading volume. With fewer than 200,000 shares changing hands on average every day, the stock isn't liquid enough to qualify for my portfolio. But that shouldn't keep the more adventurous among you from taking a flyer on this healthy insurer.
If, on the other hand, you'd rather be following a fully advised portfolio of sizzling emerging market stocks, you might want to consider subscribing to the Cabot China & Emerging Markets Report, the newsletter that I write. It has the top five-year return of all newsletters followed by the Hulbert Financial Digest. I think you'll like it. Click here for more information.
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
Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.