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July 24, 2009

The S-Chips Are Cheap
by Daniel Aaronson and Lee Markowitz

Below is a Bloomberg stock screen of Chinese companies listed on the Singapore Stock Exchange. These companies are known as the S-Chips. The stocks listed in the table have Wall Street analyst estimates for 2010. While the market caps are relatively low, they would be much higher if the stocks were revalued to PE multiples of even half of those seen around the world.

We do not recommend buying all or any of these shares, but we do suggest that each stock be valued both on its own merits and relative to other equities trading around the world. Some of these companies are struggling (such as Caterpillar in the US which is trading at 20X earnings), but, on the other hand, some are amazing growth stories.

One of the reasons that the S-Chips are so cheap relative to other equities around the world is that in the past a few of them were associated with scandal. We argue that it is impossible for all of the S-Chips to be fraudulent and encourage investors to analyze them because they may be some of the world's greatest stock values. For example, China Sports is trading at net cash and 2.6X earnings compared to its much larger competitor Li Ning that trades in Hong Kong at 20X earnings. Could the consumer environment for shoes and sporting apparel be so different for these two companies? Maybe, but it is definitely worth the effort to figure it out.

Source: Bloomberg July 22, 2009

Daniel Aaronson
Lee Markowitz CFA
Continental Capital Advisors, LLC

Continental Capital Advisors, LLC was formed to offset the destruction of wealth caused by the global devaluation of currencies by central banks. The name Continental Capital symbolizes the 1775 US Currency, "the Continental", which was backed by nothing and quickly became devalued.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any action taken as a result of reading this is solely the responsibility of the reader.

Copright 2009 © Continental Capital Advisors, LLC

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