Several folks have sent along a teaser article that Robert Hsu published on his free site a couple days ago — in it, he tells us that China and India have joined on with the nonbinding Copenhagen Accord, and that as a result China has voluntarily agreed to reduce its “carbon intensity” significantly over the next ten years.
He thinks there’s money to be made from this, no surprise:
“And these goals are creating some interesting investment opportunities–especially as China continues to recognize the importance of a clean environment. When you consider that China’s environmental protection industry is expanding at a rapid 23% per year, and more than $190 billion will be spent on pollution cleanup, you can quickly see the incredible opportunity for investors in this sector.”
So which stocks does he think we should buy? Well, he won’t quite tell us, of course, for that we’re asked to sign up for an Asia Edge subscription for $1,497 … but of course, the Gumshoe is on the case! If you want to play along at home, the teasers are in this article form InvestorPlace Asia.
Not a lot of clues today, but let’s take our best shot. Here’s what we’re told about the first idea:
“PICK #1: China’s leading provider of environmental protection equipment for the booming iron and steel industry. The Chinese government is requiring that companies reduce their sulfur dioxide emissions and have wastewater treatment equipment in place within five years. And this company is the leader with a significant gross margin for each proprietary product.
“As a result, the company is snatching up contracts left and right. My Asia Edge readers are already up about 75%, and I’m expecting the company to rocket higher when it announces earnings soon.”
Hmm … leading provider to that industry, wastewater and sulfur dioxide treatment, chance that investors could be up 75% at some point in recent years, I think this probably has to be …
Rino International (RINO)
RINO is a fairly small company, roughly a half billion in market cap, and profitable — and yes, it does both sulfur dioxide amelioration and wastewater treatment, largely for the steel industry, along with some related products and services. Trader Mark had an interesting look at one of their contracts a couple months back, and the stock is certainly up huge from the lows of the financial crisis (which also cut into steel demand for a while, and made us all fear everything that looked even a little bit shaky).
It’s also one of the many Chinese stocks that is controlled by a single shareholder, in this case Dejun Zou, who is also the CEO of Rino and of several subsidiaries. The filings are a bit odd because there’s also a trust holding in the British Virgin Islands that I assume is probably also connected to Zou, but on my rather cursory look it appears that he owns about half of the company.
Rino has had some positive comments from other investing pundits recently, including a small profile in SmartMoney and fairly frequent mentions in throwaway Motley Fool articles. Other than that, I’m not terribly well-informed on these guys yet — still, they’re certainly growing, if the steel business continues to grow and Chinese regulators continue to enforce stricter emissions and wastewater rules for industrial firms, then the path to growth seems quite clear … and they are profitable, and arguably undervalued based on their growth rate. If you’ve got a feeling about RINO, feel free to share with a comment below.
“PICK #2: China’s premier water treatment management firm that is focused on providing clean, fresh water to its citizens. In fact, with China expected to spend around $40 billion in 2010 just on water resource management, this company is soaring!
In addition, the company is capitalizing on a stream of contracts with the Chinese government, which are opening doors and expanding the company’s reach throughout China. And what’s even better, this micro-cap has recently pulled back from its highs, providing an excellent entry point for new money. My Asia Edge readers are up a modest 30%, and we’re headed higher! Learn more.”
This doesn’t make much sense to me, because the stock that he’s referred to as the “premier water treatment management firm” before has been Duoyuan Global Water, but as you’ll see in the paragraphs below, that’s probably not his pick #2. So … given the limited clues I can’t really tell you for sure who this might be. But I can guess — and given the “micro cap” tease and the “management” focus, I’ll throw out Tri Tech Holdings as a possibility (ticker TRIT). This is a company that does have a number of contracts, but the focus is more on hardware and software for water management and monitoring, something I’d never thought of before. If my guess is right, then Ian Wyatt may also have been picking this stock for his SmallCapInvestor Pro service back in December.
On this, I could certainly be wrong — but TRIT is a tiny little fish and it’s certainly an interesting business, wouldn’t be surprised to see their ticker darken our door again. They are profitable and growing, but have no analyst coverage and are teensy, with a market cap of under $100 million, so if you’re interested please be extra careful.
And our final stock to sleuth out?
“PICK #3: China’s leading domestic water treatment equipment supplier that is benefiting from the country’s need for clean, drinkable water. This company just released solid earnings, and I’m expecting shares to head higher in the near future as China’s demand for water treatment products is estimated to increase at nearly 16% per year through 2012.
The company plans to launch a whopping 36 products through 2010 — adding to their already-formidable base, and I expect the company’s competitive strength and cash position will allow the company to nicely capitalize on the market in the coming months and years.”
This one must be Duoyuan Global Water (DGW), an IPO from last year — and they’re actually getting down to close to that IPO price again, after rising significantly higher over the Fall and Winter. Duoyuan was teased by Keith Fitz-Gerald back in September in the low-$30s and is now available for about $25, the forward estimates put the PE ratio at about 15 and growth at 18-20%, though that’s from only three analysts. Clearly water treatment is a growing business in China, but it’s also quite clear that the companies involved tend to be mighty volatile little dudes. I’ve been keeping this one in the back of my mind since the IPO, but the temptation hasn’t gotten strong enough yet for me — if you’re a shareholder (I know quite a few folks were interested last time around, in September, so hopefully you haven’t lost money on the stock recently), feel free to let us know what you think of DGW and its prospects.
Oh, and yes, they are planning to launch 36 products this year — that’s from their fourth quarter earnings release which came out last week. Earnings came in a penny short on that release, for whatever that’s worth (they had also pre-announced the results back in January, which is probably the main reason that the shares declined over the last couple months). They also did a secondary offering back in late January at just under $30, after the shares had fallen from highs of just over $40 late last year.
So there you have it — three possible plays on cleaning up China’s air and water, a worthwhile goal that probably will see some big “stimulus” funding for many years. As you can tell, I don’t have in depth knowledge of any of these companies, but they all look interesting on the surface — if you’ve looked into them, feel free to comment below and let us know what you thought.
Oh, and don’t be worried about the new-looking comment box, I’m installing a new system that will hopefully make it easier for us to share and track comments and “vote” on good or less-good comments so commenters can more easily build a “reputation” here at Stock Gumshoe (many of us know who the “best” commenters are if we’ve been around a while, but this will help out newcomers who’ve been asking for some kind of ranking system). It should be working in fits and starts this afternoon, and older comments will take a little while to migrate into the new system — take a crack at it and see what you think.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.