“My Most Profitable Trip to China in Five Years” Robert Hsu

By Travis Johnson, Stock Gumshoe, October 5, 2009

This latest pick from Robert Hsu is for his more expensive Asia Edge newsletter — he pitches it as more “pan Asian” than his China Strategy letter, but it’s also just, well, more expensive … after all, anyone who’s anyone in newsletter land has to have an “intro” letter to get people in the door, and then at least one more expensive letter that you can pitch as an “upgrade.”

And while it does sound impressive to hear that this is Hsu’s “most profitable trip to China in five years,” it’s probably useful to note that he’s not new to hyperbole — back in the Spring he told us about the “most phenomenal” company he had seen in five years, which spiked quite a bit following his enthusiastic endorsement, but has been quite flat overall since then.

This pick appears to be also Chinese (as opposed to just being part of the “greater China” theme), though the clues are a little bit limited so it’s hard to be 100% certain. What do we learn about them? Here are Hsu’s words:

“I’m writing you directly from Beijing, China, where I just got out of a meeting at the Ministry of Transportation and I simply can’t stop shaking.

“Not because they tried to brainwash me, my friend; those days are long gone.

“I’m shaking like a leaf because of the virtual MONOPOLY the Chinese government is giving one company in the transportation sector and the GREAT PROFITS that are at hand. “

“Monopoly,” eh? Now I don’t know about you, but that word give me itchy palms … unless, of course, I’m a forced customer of that monopoly, then I just get grouchy (please refer to our family’s dispute with the local cable company, we’ve now held a grudge for about ten years). But as an investor, you’ve gotta love a nice monopoly.

Some more info to whet our appetite? It’s gotta be good, this is a pretty expensive newsletter …

“The 121% gains we’ve made to date in this government-blessed transportation technology company we have been touring are just a sneak preview of the profits that are headed our way.

“Once you see my full write-up on this, I guarantee you’ll agree the next wave of profits is going to knock your socks off.

“If you can grab this one now, before it declares second-quarter earnings on November 11, you could easily grab a double in the next 90 days.

“My full write-up explains why and will go as a free bonus to all Asia Edge clients in good standing TONIGHT.”

Now, by “tonight” he could have meant almost any day in the last week or so — this ad letter has gone out many times in several forms since September 27 or 28.

Some more info?

“This is your chance to get in on the ground floor of the of the most locked-in profit opportunities I’ve seen in all my trips to China over the years.

“As you’ll see in tonight’s issue, only one—I repeat, only ONE—analyst is covering this company and its virtual monopoly on a monster growth opportunity.”

This is all about a Chinese transportation technology company of some kind, apparently, though he doesn’t go into much detail about specifically what the company does.

“This is why the government has committed nearly $100 million to developing an intelligent, technology-driven transportation system, using the high-tech solutions in which our top recommendation in this sector has a virtual monopoly.

“That is why my palms itch in anticipation of the profits headed our way, now that I’ve seen firsthand how the Chinese government will be funneling millions into this company’s high-tech traffic monitoring solutions to reduce backups and increase traffic flow.

“This is why I’m expecting another breakout in sales and earnings come November 16 and why the windfall I foresee could not only dwarf the 121% gains we made since July 8 in this virtual monopoly …”

Well, it’s nice to see that Robert has itchy palms, too … so who is this company?

Like I said, the clues provided don’t allow for 100% certainty, but one reader named Lucy sent in a proposed solution, and I think she’s right (though other readers have sent in other guesses) — this is, in all likelihood …

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China TransInfo Technology (CTFO)

This is a Chinese technology firm that primarily specializes in traffic monitoring and management — involving, as far as I can tell, the kinds of networks for traffic analysis and real-time reporting that you’ll also see from some US mapping companies, as well as other GIS applications, smart tolls, and other related transport technologies. … and they are pretty well tied in with the government, with plenty of patents, a role in standard-setting, and partnerships with Peking University. They claim that they are “the largest provider of traffic information products and solutions, including comprehensive transportation media information platforms, in China.”

And I’ve seen anecdotal evidence that Hsu did visit that company at some point in the recent past, and they are scheduled to release earnings on November 11 (that’s six weeks after the end of the quarter on Sept. 30), though I haven’t seen a formal announcement that this will be the date. I don’t know why he teased both the Nov 11 and Nov 16 dates, but if he did pick this stock back in July it’s quite possible that his subscribers have seen the better-than-100% returns he claims.

I noted that this ad has been running for about a week — and that’s also about how long the stock has been at these rarefied levels — the shares spiked almost immediately as soon as I saw this ad, so I didn’t rush to write about this particular one (it’s always nice if you can look at them after the spike calms down). But though the shares gave up some small portion of the initial gains on Thursday and Friday, the ad also ran hot ‘n heavy over the weekend, so there was an enthusiastic buying response this morning and the stock is up about 10% today, too, at right around $9.80.

Are they really a monopoly? Well, there are lots of companies around the world who do this same kind of thing, so it’s not necessarily true that they have some unique or proprietary technology — but if they are homegrown and have good relationships with the government, past evidence from other Chinese companies would indicate that they’re probably better positioned than their foreign competitors to win government business. I don’t know if the big American or European software firms are also competing with these folks for traffic and transportation monitoring and analysis work, but it would stand to reason.

The company does have one analyst following them, which also matches Hsu’s clues, and that analyst tells us to expect 59 cents per share in earnings this year, and 82 cents next year, which, if correct, would make these shares pretty reasonably priced — that’s a forward PE of about 12, for earnings growth of better than 30%. I’m sure the analyst knows the company better than I do, but of course I’m not sure that he (or she) … or Rober Hsu … is right. CTFO is certainly on the screens of many momentum traders, it’s got a top composite rating of 99 from Investors Business Daily and has recently been in their top stock listings, and the chart line goes pretty steadily from the bottom left to the top right, which most folks seem to like.

Will it keep moving? That’s anyone’s guess — I’d still be inclined to assume that it will come back a bit after this attention from Hsu dies down a bit, but you never know, he might have caught lightning in a bottle … if you’ve got an opinion on this company, please let us know with a comment below.

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