“Safely Play China’s Growth” Without Borders

A few days ago I noted that if there were a reasonable Chinese cement company to invest in, that I’d consider doing so. Immediately, several readers tossed some ideas on the pile for me to consider … and though it was a throwaway comment, more or less, I thought I might better take a look.

Especially when a few folks alerted me to the fact that one of the new services from Casey Research, called Without Borders and put together by Fitzroy McLean and Simon Black, recently began teasing a Chinese cement company as one of their favorite low risk picks.

(My comment that started this, by the way, was in the context of me noting that I sold my shares of Cemex last fall, partly because Cemex is so heavily weighted in the Western Hemisphere and the US and has had trouble getting into Asia — clearly, that decision to sell on my part was quite premature. So, another good reminder for all of you that I can be an idiot. Doubtless many of you didn’t require such a reminder.)

So let’s dig into this Casey pick for a cement company. What kind of clues do we get?

Well, you can read the whole teaser article here if you like — or in lots and lots of other places, they appear to do much of their marketing by providing these “free” articles for republication to hundreds of websites, which I imagine is cheaper but probably less effective than the more typical email campaigns most publishers use. The free articles are just as much a tease as the emails that provide tantalizing clues but neglect to include the name of the company, so we can work with them just the same.

This Without Borders newsletter is normally priced at $199 a year, by the way — sort of middle of the road as far as prices go (though it looks like it’s the cheapest newsletter on offer from Casey’s bunch), and they’ve got lots and lots of competition from newsletters that are jumping on the “undiscovered foreign stocks” bandwagon.

As an aside: If there were a way to track and count new newsletter introductions, it wouldn’t be surprising if they turned into contrary indicators — when we get to the point that there are 50 new foreign investing newsletters introduced in six months, does that mean we should pull back and focus on US stocks? Just wondering, I have no such data.

But anyway, we were looking for a stock idea, yes? Still with me?

Good. I admire your patience.

Our clues, in the words of our fair touters:

“We are currently following a Jersey-domiciled, London-traded cement company based in the western China province of Shaanxi (not to be confused with the neighboring Shanxi province…). Shaanxi is one of the fastest growing provinces in China, and this cement company is ideally positioned to capitalize on this growth. Currently trading on London’s Alternative Investment Market (AIM) at only 6.4 times earnings and 4.6 times current assets, this stock is as undervalued as it gets, especially considering the growth prospects.

“While it has already provided us with solid profits, we see it as a relatively near-term double from today’s levels. But we digress from the central point here… which is, because it trades on the London AIM, and not Shanghai, your shares have nowhere near the volatility.”

Well — “as undervalued as it gets,” I like the sound of that.

And as I noted, Chinese cement is an appealing business sector for me. I thought so before the terrible earthquake, and, awful as it sounds, that disaster seems likely only to increase demand for building materials in China.

Cement is one of the businesses that can often create a nice competitive advantage for a company, even though it’s a commodity product — that’s because it’s so incredibly heavy and hard to transport that companies can often have a near monopoly over their geographic area, especially if there are any restrictions on new competition (permits, access to quarries and raw materials, transportation infrastructure and network, lack of enough business to support a profitable competitor, etc). Cemex has added to that by upgrading customer service and using technology more effectively than most of their competitors, but even small-time local cement companies can look awfully good from a sustainable profitability perspective.

So that’s why I have some fondness fpr cement as a general investing idea in the infrastructure sector … and those are the clues we get from Without Borders. What’s the company?

Thinkolator spins and spins, mixing up the aggregate, and tells us that this is …

West China Cement (home listing is on LSE’s AIM at WCC, doesn’t appear to trade on the pink sheets)

This one does certainly look cheap based on earnings — the shares are way off of their China-bubble highs from last year, but have been climbing out of a dip in the last few weeks and are currently trading around 127 pence ($2.40 or so). They went public in London about 18 months ago at 105p, and are another one of those smallish Asian companies that has raised money on the public markets, but that remains