One Very Spiffy Chinese Stock

By Toby Shute | More Articles
November 23, 2009 | Comments (10)

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Don't you just love it when a stock spiffy-pops? You would if you knew what the heck I was talking about.

Rule Breaker Fools coined this term back in 2007, when David Gardner sought to describe the phenomenon of a one-day stock price jump greater than the original price paid for that stock. Such daybaggers among the ranks of Fool newsletter picks include Intuitive Surgical (Nasdaq: ISRG ) , Amazon.com (Nasdaq: AMZN ) , Marvel (NYSE: MVL ) , and priceline.com (Nasdaq: PCLN ) .

Well, the sound may have been faint last week, but that was definitely a spiffy-pop ringing out from Xi'an, China. China Green Agriculture (AMEX: CGA ) rose by $3.51 per share last Wednesday, compared to the Global Gains team's buy price of $2.30.

This organic fertilizer company has certainly come a long way in just a year. Last November, China Green was a microcap stock trading on the over-the-counter bulletin board. But the company was already posting strong numbers, and a massive catalyst was visible to those willing to dig into this international agriculture story.

The company was working on expanding its facilities to achieve a fivefold increase in capacity by fiscal year 2010. That put the stock's multiple at less than five times our analysts' estimate of forward earnings. They floated the prospect of 100% to 300% appreciation potential, which may have seemed outlandish at the time, but in fact turned out to be conservative.

While most of us fertilizer fans were fixated on the likes of PotashCorp (NYSE: POT ) and Agrium (NYSE: AGU ) , the smart money was on a small, niche player that was dirt cheap and growing like gangbusters. You only had to know where to look.

Tim Hanson probably wouldn't have had the confidence to recommend this tiny, illiquid stock to subscribers, had he not visited the company's greenhouses back in 2007 and tasted the results of the company's R&D. Now, he and the team are traveling to India, hunting for more killer investment opportunities. If you want to receive their free dispatches from the road, click right on over here.

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Intuitive Surgical is a Rule Breakers recommendation. Amazon.com, Marvel, and priceline.com are Stock Advisor picks. China Green Agriculture is a Motley Fool Global Gains pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On November 23, 2009, at 7:06 PM, DownEscalator wrote:

YONG is a better bet than CGA in the long-term.
Report this Comment On November 23, 2009, at 7:16 PM, Viking70 wrote:

CGA’s branding appears to be strong, and management is taking steps to protect and enhance their brand recognition. The strong brand has led CGA to increase their focus on selling higher-margin products. In addition, with 17 – 21 new products in the pipeline this coming year, CGA’s increased sales targets seem achievable.
Strong branding has led CGA to pursue opening their own stores in areas not currently covered by their existing, third-party network, which ought to increase margins. It is true there is a risk in stepping into retail sales, but management is confident and appears to have a good plan. It is obvious that CGA is not taking on this aspect of their business without some thought.
With a forward PE of 13.5 and a project 40% sales growth in 2011 (FY10 ends 30 June 10), this stock has room to grow even with the issuance of new shares today (approx 1.3M or 6% of current). There is the possibility of another 320K shares being issued as well. Not a great, but over the long term, probably the right decision for the company.
CGA’s growing market penetration in a fragmented marker makes it a much more probable growth stock than POT and AGU. POT and AGU’s markets are pretty mature, while the Chinese market is still growing, and, I believe, somewhat protected by the Chinese government.
There is always risk with Chinese companies, but this risk is declining as transparency increases. For me, the risk is greatly outweighed by the potential growth.
Report this Comment On November 23, 2009, at 7:19 PM, Viking70 wrote:

DownEscalator: Why do you think that YONG is better than CGA over the long term?
Report this Comment On November 23, 2009, at 8:06 PM, VegasMartin wrote:

I'm a big fan of CHU and CPBY.
http://www.ShootTheBears.com
Report this Comment On November 23, 2009, at 8:09 PM, VegasMartin wrote:

I'm pretty big on CHU and CPBY. I like those Chinese picks.
http://www.ShootTheBears.com
Report this Comment On November 24, 2009, at 1:50 AM, greenwave3 wrote:

Agreed. YONG is more appropriately valued and is growing very quickly.
Report this Comment On November 24, 2009, at 9:00 AM, sofpan wrote:

Now I don't have either YONG or CGA.
But both of them, seems to me excellant investment choises for the long term.
Both companies are doing business in china's agriculture sector, that is Very goooood because their growth potential, depends basically only in mainland China's agro progress.
The choise is very difficult. I copy paste the stock datas for both stocks from yahoo finance:
YONG
Market Cap: 318.07M
P/E (ttm): 209.09
EPS (ttm): 0.04
Forward P/E (fye 31-Dec-10) 1: 8.29
PEG Ratio (5 yr expected): 0.29
Price/Sales (ttm): 3.50
Price/Book (mrq): 7.78
Total Revenue of 2008: 48,092
Net Income of 2008: 13,311
CGA
Market Cap: 359.49M
P/E (ttm): 18.91
EPS (ttm): 0.84
Forward P/E (fye 30-Jun-11) 1: 10.50
PEG Ratio (5 yr expected): 0.73
Price/Sales (ttm): 9.56
Price/Book (mrq): 4.20
Total Revenue of 2008: 35,208
Net Income of 2008: 14,464
Now, which is best?
YONG or CGA?
Report this Comment On November 24, 2009, at 12:56 PM, Cressida wrote:

Buy them both. We are talking about feeding 2billion people.
Both excellent buys. Got 'em...bought YONG first and is making yuans for me, and now CGA that it's a spiffy-pop. (I goofed; should have been in long before now.) BIDU was a 4-bagger for me when I sold; but I'll be back in when/if it drops.
Live and learn.....Fool on...
Report this Comment On November 24, 2009, at 5:19 PM, acbill wrote:

I remember about 4 years ago a chinese fertilizer stock which was manufacturing organic fertilizers, I can't recall the name or symbol but it was all the rage. Everyone including the financial news cheerleaders were talking it up as being the next big millionaire maker. The stock was bid up into the $20-$30 range within a few months then quickly fell flat on it's Azz and lost about 2/3 of it's share price. I bought a couple hundred shares on spec and cashed out a year later at a loss. Not a big deal but worth mentioning. It was also a spiffy-pop. I guess some got spiffyed but many including me got poped. Just a word of caution from a real life experience.
Report this Comment On November 25, 2009, at 5:10 PM, Xiamen wrote:

One small note about the article - CGA was recommended in Nov 2008, not in 2007. When CGA was recommended, the both Bill Mann and Tim recommended it.
Now Bill is working on the Fool's Pro service. I remember Bill responding to a board comment about CGA and a concern about the low volume, but Bill was steadfast in his support of the stock and that it would rise, and he was exactly right. I got CGA at $2.45 due to Global Gains, for a nice 6 bagger for me in about a year (purchased on 10/31/08).
I've also had other great picks from Global Gains, so keep up the great work!

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