By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 10/3/11 Sign up for free Cabot Wealth Advisory newsletter
This is not, to put it mildly, a good time to be investing in stocks. The winds and tides of the market are blowing resolutely against you, which reduces your odds of making any real money to worse than an ant's chances of making it across a freeway at rush hour.
Those tides and winds seem to be paying special attention to Chinese stocks, pulling even the most robust of them lower.
But a bad time for buying is a great time for working up a watch list, and Renren (RENN), one of the top candidates for the title of "the Facebook of China," is a great addition to any growth watch list.
Renren (the name means "everyone") is a social networking platform that encompasses four different sites. Renren.com is a standard social networking site that allows users to exchange messages, pictures, music and other user-generated content. Renren Game Center offers a wide variety of web-based games. Nuomi.com is what's called a social commerce site that features daily deals on merchandise, local services and cultural events, often using group buying to get great deals. Jingwei.com is Renren's newest site, a recently launched service focused on business and professionals.
Renren generates revenue from a mix of advertising and value-added services, and hasn't hit consistent profitability yet. But with over 124 million user accounts as of the end of June, there's a solid base to build on, especially considering that there are more people online in China than there are people in the United States.
RENN made a little pop when it came public in May, ripping from its IPO price of 14 to as high as 24. But it only took a day for reality to set in, and RENN is now trading resolutely under 6.
There are lots of reasons for this, including a round of accusations (many of them quite true) about fraud and misrepresentation in the quarterly reports of Chinese companies, the threat of interference from the government of China in any successful social media, and a general downtrend in the Chinese Internet sector after a huge runup.
Without minimizing any of those risks, I contend that these threats are already priced into the price for RENN, leaving the stock fairly priced as a representative of an out-of-style sector in an out-of-favor country.
But the trick isn't to try to figure out whether RENN is a good deal here. The market will determine that.
Once investors sort out the reporting issues and all the rest of the potential problems, RENN will be a popular choice for its enormous potential.
The time to start watching closely will be when RENN pushes back above its old support at 7.5 with rising volume. When sentiment shifts, RENN will have plenty of fuel.
You could buy RENN here and hope for the best or you could check out Cabot China & Emerging Markets Report, the top source for the best stocks in the world's fastest-growing economies. According to Hulbert Financial Digest, the Report has an annualized return of 9.7% during the last five volatile years (stomping the Wilshire 5000's measly 1.3% return)! Get started today.
By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 5/5/11 Sign up for free Cabot Cealth Advisory e-newsletter
My investment idea for today is really more of a research note than a stock recommendation. While the investment world is holding its breath during the run-up to the initial public offering of Facebook, the Chinese company Renren (RENN) (tagged with the catchy "Facebook of China" label) came public yesterday.
RENN made a nice debut, officially offered at 14, soaring as high as 24 in early trading, then settling down at 19 for most of the day before ticking lower to 18 near the close. Trading action during the stock's second day pulled it back to 16.
The numbers for Renren (which means "everyone" in Chinese) are compelling. Only about 35% of China's 1.3 billion people are on the Internet, and about half of them have some connection to online social networks.
So the upside potential for Renren (and RENN) is enormous.
The popularity of the Chinese Internet as an investment theme is evident from both the success of established companies (Baidu.com and Sina.com are both institutional-grade market leaders) and from other recent IPOs, like Qihoo, Youku.com and SouFun.
The Cabot growth disciplines don't have much of a place for brand-new stocks until they settle down a bit, including the frequent post-IPO droop that has hit many hot issues.
The technical analysis part of our analytical methods don't really kick in until a stock's chart has a few months of data to work with.
But RENN will be instructive to watch, and maybe, eventually, profitable to invest in.
Editor's Note: Paul Goodwin is the editor of Cabot China & Emerging Markets Report, which Hulbert Financial Digest ranked as the #1 newsletter for five years in 2009 and 2010) with a total return of 174% as of December 30 vs. the Wilshire 5000's 15.4% gain over the same period. Paul uses Cabot's time-tested growth investing system to help his subscribers profit from the hottest stocks in the world. Don't miss another high-potential recommendation ... subscribe today!
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.