This one didn’t come in on an email ad, but it’s a teaser for a couple companies nonetheless … and you know how your friendly neighborhood Stock Gumshoe just looooves a teaser!
Tony Sagami runs a newsletter called Asia Stock Alert for Martin Weiss at Money and Markets, and we’ve looked at him before — unfortunately for him, it was when he was teasing Garmin as the #1 best tech stock to own now back in June, 2007.
I suppose it was one of the best ones to own for a little while there, for about four or five months — it was around $65 when he teased it, and it did shoot up over the winter to over $120. Now? It’s back under $50. So perhaps he had a trailing stop and still got a gain for his subscribers in that one, I don’t know.
Like Robert Hsu, Sagami claims that his advantage in choosing Asian stocks, and in particular Chinese stocks, is that he visits the places that no one else wants to visit, and he does his own “boots on the ground” research. I don’t know if there’s any truth to their claims that all other analysts spend their time at Shanghai nightclubs while these intrepid souls sneak around warehouses with cameras, but we’ll let them have their glamorous Gumshoe image.
Myself, I’m more of a specialist in “butt on the chair” and “eyes on the page” research, since I don’t think 10-K filings can persuade me with earnest arguments quite like corporate managers might … but I can see how “boots on the ground” can also be effective.
But we did have a point here, yes?
Right then — some Chinese companies for our perusal?
These teasers came from a purported “phone interview” between Martin Weiss and Sagami, where Sagami detailed his plans for a trip to China. And somehow, into that interview slipped a few oblique references to intriguing companies that Sagami will be visiting.
And he somehow neglected to mention their names.
Enter the Gumshoe.
It should be noted that these might not be active recommendations of Sagami’s — he’s going to visit them and he colors himself intrigued by them, but I suppose he might decide not to pick them. Just like you can decide for yourself whether or not they’re interesting.
This is the shorter one — Sagami mentions that he’s going to visit Macau. Anyone remember Macau? It was going to be the gambling mecca of the world, Jim Cramer talked about it every day, and the prices could only go up and up and up as more gambling-mad Chinese made their way to the one legalized gambling site in China? Yes, I know you’ve heard of it.
And we all kind of stopped paying attention because the two standard-bearers for Macau casinos, at least for US investors, have been suffering a bit since their highs of last Fall.
Wynn Resorts (WYNN) went over $170 a share just before Halloween, but is now back to about $100. Still not bad if you had bought in for $20 in 2003 well before Wynn’s Macau casino opened … but the bloom is, at least a little bit, off the rose.
Sheldon Adelson’s Las Vegas Sands (LVS) is in more or less the same situation — shares got to $140 or so in late October, and are now about half that.
There’s also Melco PBL (MPEL), which is an Asian company that has one of the other casino licenses on the former Portuguese colony … but frankly, if we’re betting on a big Vegas-style entertainment complex that pulls in people for more than one-day stays, and gets more from them than just a bunch of gambling losses, I’d probably sooner bet on either of the proven Las Vegas operators. MPEL does have some interesting ideas, though, including some smaller gambling “cafes” throughout Macau.
That’s not to say that Sagami was looking at any of these three … I’m still just prepping the teaser here.
Did I say this was a short one? Lies.
Sagami said he was going to visit Macau to see if the new casinos are still packing in the crowds like they did when they first opened … and if they can keep the crowds big, he might recommend one of them.
But more intriguingly — since a huge amount of the traffic into Macau comes from very affluent Hong Kong — he noted that he would also be looking at the company that has a monopoly on the ferry service between Macau and Hong Kong.
He doesn’t mention which company he’s teasing here, of course, but it really has to be …
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Shun Tak Holdings (0242 in Hong Kong, SHTGY for the 1:10 sponsored ADR on the pink sheets)
Shun Tak is the holding company for much of Stanley Ho’s Hong Kong/Macau empire — and the company really traces its development back to the founding of that Macau/Hong Kong ferry service in the 1960s. They are now also a major property owner in both Hong Kong and Macau, and own most of one of the gaming licenses in Macau, but certainly a big part of their business is still the high speed ferry, which has also expanded to other routes. The ferry operates under the TurboJet name.
But there’s a bit of a complication here — you see, Sheldon Adelson didn’t much like having the ferry terminal so far away from his Macau casinos, which are on the Cotai Peninsula. So he is fighitng the monopoly by running the CotaiJet ferry service from the Cotai Peninsula — which is kind of like a Macau Suburb, where many of the big new resort hotels are being built — to Hong Kong and back.
It’s a ways from really competing with TurboJet, as far as I can tell, but even though they use different terminals that are several miles apart, it doesn’t really look like TurboJet still has a “monopoly” to me.
That’s not to say there’s anything wrong with Shun Tak or with Las Vegas Sands — both are pretty richly valued for what they are, Shun Tak is quite a bit less expensive on a strict valuation basis because it has the large, steady ferry service and commercial real estate portfolio to balance the gaming business, and LVS gets a little better geographic diversification thanks to the Venetian in Las Vegas and their Singapore casino complex under construction, but it’s really all about gambling. There are only six casino licenses in Macau, and LVS, WYNN, MPEL and Shun Tak (through it’s 80% holding in the former monopoly casino business) have four of them and a huge share of the business. MGM also has one, in partnership with Pansy Ho, Stanley Ho’s daughter, and Galaxy Entertainment, another Hong Kong-listed company, has the sixth one.
So if it’s just gambling in Macau you care about, you might want to take a look at one of the real casino-focused players … and shed a little tear for poor Stanley Ho, who lost that beautiful monopoly a decade ago.
But that’s just a guess on my part, I don’t own any of them and have never dug deep enough to value them to my satisfaction. I have a soft spot for Adelson because he’s such a character, so I’d probably look at LVS first — and I do like that he was pushy enough to start his own ferry service. Plus, it’s only fair to look at Las Vegas Sands first, because it was the Sands Macau that really brought forth the new era in Vegas-style Macau megacasinos when it opened in 2004.
But with Stanley Ho, Steve Wynn, and Sheldon Adelson, who are all giants, all fighting for the same pot … there might not be any losers (or winners). Adelson and Wynn coexist just fine in Vegas, along with dozens of other rapacous competitors, most of whom seem to do a fine job of making money. Wynn’s company is the baby in that group, by the way … it’s valued at about $11 billion, half of the market cap given to both Ho’s Shun Tak and Adelson’s Las Vegas Sands.
Back to our point: Sagami is interested the idea of the ferry monopoly, and he may have something to say to his subscribers about Shun Tak when he gets home … if you’re interested, you might as well do your “butt on the chair” research and see if you can form an opinion before he does.
And there was another one that Sagami mentioned he would soon visit — it’s got nothing to do with casinos, and it’s even closer to Hong Kong.
Here’s his teaser:
“I’m going to head over to Hong Kong and cross the border to Shenzhen, one of the major manufacturing areas of China.
“The first place I’m going to go is a company that makes batteries, portable batteries. They make batteries for MP3 players, iPods, cell phones, laptop computers. If it’s portable and it needs a battery, they make it. That by itself is a very profitable business.
“Meanwhile, with the oil price as high as it is, one of the most popular items in the world is going to be the hybrid vehicle. So this company is taking their battery technology, one of the best in the world, and applying it to automotive batteries.
“I believe they are about to land a very lucrative contract with a major U.S. auto manufacturer. If they get that, and I think they will, this stock is really going to explode. It’s only around 5 bucks a share right now. I can see it jumping to $7, $8, $9 dollars a share almost overnight.”
So what are we dealing with here? Well, it’s probably not possible to be 100% more certain, at least not if I’m going to be lazy about it and not visit every battery company in Shenzen, but I’m almost positive that this would have ot be …
China BAK Battery (CBAK)
I was going to blabber on for a while about how this is a ridiculously competitive business — Lithium and Lead rechargeable batteries — and that a deal with a U.S. automaker can often be the kiss of death for a supplier (at least in terms of profitability — but hey, if they lose money they can make it up on volume … right?)
I’d temper that with a discussion of the growing importance of batteries, I guess — since we all know that solar cells only work during the day, and wind turbines only generate power when it’s breezy … and the next generation of dinosaur-free cars isn’t going to be able to run off of solar cells on the roof, it’s going to take some sophisticated and safe power storage … batteries.
But then I saw a pretty good article that did a better job of that — there was an article in Forbes on the whole universe of competing lithium battery technologies, and the many, many companies involved.
Read that, and if you still want to invest in a battery company, let me know which one.
I would generally prefer to stay away from producers of commodity parts, and in my mind batteries are very much commodities right now. True, someone’s going to develop a better one, and I see a teaser about a better battery every few weeks — but the one who breaks the mold and brings new battery technology into the mainstream probably won’t be the low cost Chinese producer that’s just now becoming profitable.
It might be, but I wouldn’t bet my money on it. I wonder if Tony Sagami will?