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$6 China Biotech Stock to Hit $10!

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This ad came in fast and hard over the weekend, behind the full marketing might of the folks at Investorplace in service of Asia Edge, Robert Hsu’s more expensive pan-Asia newsletter.

And it looks like they’re using some of the tested and (one assumes) successful marketing strategies that got Louis Navellier a lot of attention in this space last Summer (same publisher, naturally). As Navellier sent out ad after ad over the summer that promised huge returns in a matter of weeks for stocks like Gran Tierra Energy and Fuel Systems Solutions, so too Hsu is making bold short-term predictions today.

He’s found a Chinese healthcare stock that he thinks will go from the current six dollars up to ten bucks … the short term call is that Hsu says “I’m targeting 30% profit in the weeks ahead.”

And just to make sure you get your subscription in quickly, he tells us that the stock will be released over the weekend (so it’s out now, that means — the Gumshoe’s gotta sleep, after all) … and that …

“The Big Money Will Be Made in the Next 14 Days”

And of course, one of my favorite promises, also used often by Navellier: “you’ll thank me” — or, more specifically …

“Buy this one today and I guarantee you’ll thank me a thousand times by April 15th.”

So, whether or not we believe him that this stock is going to shoot forward in the weeks ahead, it can’t hurt to figure out what it is, right? At least, it can’t hurt if it’s free … which is probably why you’ve read this far. The Gumshoe has a grating habit of speaking in the third person, but he’s no dummy.

What’s the stock? Clues, please …

Or first, we should hear the big picture argument, right? Robert Hsu tells us that China’s $120 billion healthcare stimulus program is going to flood the market with profits …

“Our research indicates that the Chinese government’s $120 billion health care stimulus program will not only double the company’s earnings…

…but also hand you a quick 30% to 50% gain in the weeks ahead.”

He lays out a few reasons why this company in particular will benefit — including that they have leading anti-stroke and anti-cancer drugs which should be huge for the world’s largest cigarette market, that the “Westernization” of younger Chinese means they’ll be getting our “lifestyle” problems like obesity and diabetes, and that the growing health insurance business in China will help people get access to more medicines.

And we get a few specific clues that should help the Thinkolator focus in on the stock …

“… 37% sales growth, 24% earnings growth and a $150 million gross profit.”

“Our top stock in this sector … has the biggest distribution network in the generic branded sector”

“… last year, the company’s top money matter was its all-new anti stroke drug. However, when this one comes to the U.S., watch out as research clearly shows this new discovery will not only be one of the most effective anti stroke products on the market but also much less expensive than those of American competitors.”

“… the company’s lung cancer treatment is expected to capture the lion’s share of the $600+ million market by 2010—all thanks to the company’s low R&D costs.”

So we throw all that in the hopper of the mighty, mighty Thinkolator .. .and what comes out the other side? After a few seconds to centrifuge the sludge, I can tell you that this is …

Simcere Pharmaceutical Group (SCR)

To be honest, I had never heard of this company before today. They did indeed have 37% (37.10%, actually) sales growth and 24% (24.7%) earnings growth, and gross profit of near $150 million (understated a bit, it was actually almost $155 million).

The stock is just about $6 today — it opened at $6.45 this morning and is still near that price as I type, and might have gotten a little boost from Hsu to open with a small spike (though Asia Edge is quite expensive and doesn’t have a massive number of subscribers, so the impact might be muted). The shares have been public at this ticker in the US for about a year and a half, and took their big fall back in September when the financial world fell apart — before that they were trending slowly down, but still firmly in the low teens.

Simcere is profitable, and has been growing very quickly over the last few years from a small base. Right now, the trailing twelve months earnings per share is 78 cents, so that gives a very low PE ratio of about 8.

That leading drug from last year? Bicun, their anti-stroke drug, which sounds like it’s been awfully effective. Their leading anti-cancer drug is Endu, and they have a bunch of other “branded generic” drugs that they have either developed or bought, and though they’ve recently announced that their revenue this year will be a bit softer than expected, they still do expect to grow. Here’s a good article from Forbes about this reduced earnings outlook.

Analysts targets that I’ve seen for these shares are mostly right around $9-10, so if they’re right then there’s certainly a chance that the shares could boom. There are risks, of course — their core market is China itself, so if unemployment rises there as the economy slows down and people lose health insurance, or lose the ability to afford pharmaceutical treatments, sales could certainly dip more than is currently expected. Morningstar thinks you should “consider buying” the shares down at this level, for whatever that’s worth.

Other than that, I have not dug deep into the company’s business — you can listen to their most recent earnings conference call here if you like, or read their quick press release with preliminary numbers for all of last year to get a sense of the state of their business. Many other Chinese drug and biotech companies have been touted by Hsu and others in the past, and a good number of them also look like they might be inexpensive — if you want to look at some competitors you can check out American Oriental Bioengineering (AOB), which has been touted by the Motley Fool and by Mark Skousen; China Sky One (CSKI), which was a Navellier pick at one point; Tongjitang Chinese Medicines (TCM), which was briefly teased by Eric Dickson a long, long time ago; Wuxi Pharmatech (WX), which has been a Hsu pick before, or China-Biotics (CHBT), another stock I hadn’t heard of before today.

If you like this firm or any others in the space, or if you’ve got an opinion on China’s healthcare market, feel free to share with a comment below. Lots of folks were skeptical of Hsu when I wrote about another of his teasers over the weekend, do you like this one any better?

Happy Investing!


full disclosure: I have a small options position in AOB and in NPD, but do not have any interest in any other company mentioned above, and I will not trade in any investment mentioned for at least three days.

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11 Responses to $6 China Biotech Stock to Hit $10!

  1. This morning is Lunar (Chinese) New Year. Happy New Year !!!!!!!!!!! to you, Gumshoe, and to all readers!!!!!!!!!!!!

    Last year about this time I did a little research about the New Year in China and it said that there is a one-month traditional celebration. In the modern world that has become two weeks off work and two weeks when the stock markets are closed (?). If that is correct, The China Markets should be open about Feb 9 (?). I recall (maybe) that in 2008 it went smoothly. In 2007, the restart of the Chinese Markets went with quite a bump! I wonder how it will go this year??

  2. GS downgraded SCR a week or two ago, & the stock was sold off in heavier volume last month, which c/b yr. end tax selling. http://finance.yahoo.com/q/ta?s=SCR

    The feeble early rally in Jan. was short lived, & here we are just drifting. God knows that China (& the world at large) needs affordable drugs, so I for one hope that SCR will provide us with affordable generics.

    Mr. Hsu has a habit of selling LOW I’m told by a few folks who are/were subscribers, sounds to me like too many analysts were too bullish for too long.

    JMHO folks!

  3. Call me paranoid, but if a lacing story were to surface, like the tainted milk, the poisoned dog food, the lead baby toys, for a company like AOB…that’d be bad, right? Are their medicines FDA inspected?

  4. I have bought Mr. Hsu predictions in the past and so far lost at least 30%. I carried his tour company recommendation through the Olympics thinking it would do something! Nada…

  5. Anyone listen to Tim Geithner accuse China of manipulating its currentcy? This has started a fire that could lead to trade protectionism. NOT what we need right now! I wasn’t impressed with Hsu recommendations as I subscribed on a trial basis. I’m staying clear anything in China until both governments put this issue to bed.

  6. I am perfectly capable of making poor stock choices without help from Mr. Hsu. I am unaware of much of anything he has pushed that has been a raving winner. Travis, you are a master at selective wording. Thank you, thank you, thank you.

  7. Thanks for the laugh. I am also capable of making poor stock choices without Mr. Hsu.

    I do own SCR. You may find it interesting that conservative Morningstar lists SCR as a four – star stock (recently bumped down from five star)and says that fair value is $13. Go figure.

  8. Personally I like the medical equipment makers more (think of Mindray (MR) and China Medical (CMED). Look like two company that can gain continous market share in coming years and are currently fairly cheap.

  9. About Mr Hsu. Problem is that he is repeating himself all the time with about a dozen of names (in China Strategy). Those are mostly highly liquid well known Chinese ADRs, so little chance of buying something undiscovered here.
    Although some of the recommendation did quite well (in 2007/2008 most halved to say the least during the market crash.

  10. FDA only looks at stuff made within the USA and sometimes at stuff formally imported and marketed here. A majority of medicines made offshore cannot be legally sold in the US. The retirees think it is terrible because those medicines sell for a lot less than FDA approved stuff. Chemical analysis shows, however, that the feedstocks of the foreign medications are almost always laced with traces of materials like lead, mercury, poisonous petroleum chemicals, etc. In China, the name of the game is to obtain needed products or feed stocks from outside suppliers. The suppliers provide “substitute” equivalent materials that they often obtained from other suppliers who said that the product they provided -from other sources who said it was an equivalent substitute- was just as good as the real thing. The Chinese Government is trying to cope with this but they are about where America was in 1840. It has not been too long since a major news thread developed about medicine being given to small children in Central America was found to be mostly Propylene Glycol, anti-freeze, quite poisonous. A lot of babies died. The stuff had originated, it was finally determined, in Spain. It had been shipped to China, sold through a daisy chain of suppliers and finally used in China as a cheap substitute for the proper and safe carrier liquid in the medicine. The drums of propylene glycol carried the nomenclature of the desired safe chemical and a Chinese term unknown outside China which means “substitute.” No one along the way did, or usually had the technology available, to properly test for what was in the drums of chemical. It does not help those babies that, If I recall correctly, someone in China was executed for all that. I have some furniture “Made In China” and was amused that the code for ‘substitute’ was on the shipping labels. For anything I am going to put inside my body, however, I will prefer to pay higher for US made and FDA inspected. And still keep my fingers crossed.

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