Domestic Consumption In China Offers Growth Opportunities

2012-05-16 12:10:39

Investment opportunities in China are shifting away from commodity-driven themes to the domestic consumption space, which is set for sustainable growth as the country undergoes a rebalancing of its expectations in its GDP and fixed-asset investments, says Eric A. Brock, a Partner and Research Director for Clough Capital Partners, L.P.

"So in 2012, we are starting to see leading indicators in China improve in terms of growth. Credit growth is bottoming, and consumption remains fairly robust with retail sales growing around 15% or so," he said. "We just couldn't be more constructive on opportunities in the consumer sector."

Brock likes Vinda International Holdings Limited (3331.HK), a leading tissue paper company in China, because as incomes grow, tissue paper, such as toilet paper and paper towels, is going to become less of a luxury. He says Vinda is building its brand in the early stage of market development, and he sees the company growing its earnings 50% year over year for 2012 and 2013, with the shares now having a p/e ratio of about 19 times.

"According to its CFO, Vinda saw high 20% level growth in the first quarter as compared to last year, and we think that's a level that can be maintained over the next couple of years. And this is really a market penetration story; the company is now getting scale and developing a brand image, which is very important," Brock said.

Interoperability Is Key In Evolution of Health Care IT

2012-05-15 11:39:22

Interoperability within electronic medical record systems is the single biggest investment play in the health care IT sector due to the need to be able to share and access data to be qualified for meaningful use, says Deepak Chaulagai, an Analyst at Dougherty & Company LLC.

"So just having an electronic medical record system is not going to be enough. It was enough in the beginning, but now you really have to have something that's truly interchangeable over multiple platforms," he said, "and I think eventually that's where the government wants health care IT to get to."

Chaulagai has a "buy" rating on HMS Holdings Corp. (HMSY), a health care IT, fraud, waste and abuse solutions services management company, because of its dominant technology to combat inappropriate payment in Medicaid. HMSY is the major player in its market with Coordination of Benefits contracts with 44 states.

"It has the most comprehensive claims database that they've been continually developing for the better part of two decades. HMS, as a COB contractor for a particular state, gets claims data from all of the health care payers in that state," Chaulagai said. "That's their core business, and that business has been growing rapidly."

Increasing Shift To Digital Drives Internet Tech & Software

2012-05-14 11:50:33

The increased penetration and adoption of smartphones, as well as tablets, are driving the major secular trend in the surge in mobile usage consumption increases, and benefiting the Internet technology and software sectors, says Richard Fetyko, an Analyst at Janney Montgomery Scott LLC.

"All that is changing the way the consumers are consuming content more on the go and really more rich and interactive content including video, social media, and that's obviously increasing the consumption of content, but also changing and shifting the traffic sources to digital media," he said.

Fetyko has Velti Plc (VELT), an online and mobile advertising technology company, as a top pick in the sector because it is benefiting from the growth in mobile usage and mobile advertising and marketing. He says Velti is 100% focused on basically helping mobile Web site operators and mobile carriers, as well as mobile application developers, to monetize mobile assets.

"Velti offers a mobile marketing technology platform. They're growing at a 50% or so organic growth rate, and actually that growth could accelerate in 2013 based on our conversations with some of the private companies in this space," Fetyko said. "Many of them believe that 2013 will actually be the real inflection point in mobile advertising and marketing spend."

Higher Returns Expected In Small-Caps Over Next Few Years

2012-05-11 11:37:10

Small-cap stocks have generated outstanding returns for an extended period, historically, when coming out of a compression point in the market, where it has been flat for a decade or longer, and higher returns are expected over the next couple of years as a result of the recent recession, says Douglas G. Pugh, CFA, Principal and Portfolio Manager of Peregrine Capital Management, Inc.

"We are currently seeing average stock valuations coincident with higher margins earlier in the cycle," he said. "As a result, what we are seeing today are not peak gross margins. We expect to see higher margins throughout the course of this cycle, higher than we have seen in the past."

Pugh likes Hanesbrands Inc. (HBI), a manufacturer of essential apparel, undergarments and some outergarments. He says HBI is trading at only 11 times 2012 earnings estimates, but there are a lot of catalysts in place for improved earnings and higher valuation. Mr Pugh also favors the company's 14% free cash flow yield, despite its large amount of debt.

"They have a lot of debt on their balance sheet, about 73% debt to cap, but they are a huge cash-flow generator. Management expects to deploy that cash to pay down in the neighborhood of over $800 million in debt over the next year and a half. If they do that, they will save about $0.45 per share in interest costs," he said.

Investors Can Benefit From Volatility in Gold Markets

2012-05-08 11:41:23

Investors should use the volatility in the markets to their advantage when investing in gold over time, particularly retail investors, by not panicking when stock prices drop, but equally not to assume that because stocks go up, it's time to sell, says Adrian Day, Chairman and Chief Executive Officer of Adrian Day Asset Management.

"And we can think of many examples, particularly with the juniors, that tend to be more rapidly developing stories, when a stock with higher price might even be better value at the higher price, because of more things in the company," he said. "So if you invest in the juniors, you really need to follow them."

Day likes Virginia Mines Inc. (VGQ.TO), a prospect generator with a $300 million market cap. He says the beauty of that model is that it enables the company to retain its balance sheet. Virginia Mines has $44 million in cash, 20 joint venture properties, of which about six are active, and they've got about 3 million ounces in gold resources of various sites, Day said.

"You look at Virginia, and it's gone from $4.50 to $9, to $2.50 to $8, to $5 to $9, $9.30. That's a pretty volatile ride. But if you would have panicked when it was declining from $8 down to $2.50, I'm not sure when you would have got back in. That's the problem," he said.