Newsletter Watch: Asian small-cap opportunities
As a business analyst and investment editor, John Christy III, CFA, has long been recognized as one of the advisory community's leading experts on global investing.
Although he offers global coverage in his Forbes International Investment Report, the stocks he recommends are typically those that can easily be bought, such as ADRs and ETFs, by U.S. investors on domestic exchanges.
Attesting to the diversity of his recommendations Christy looks at two new small-cap positions — an "outsourcing" play based in the Philippines and an advertising company in China — as well as a small-cap fund play on Japan.
"India is not the only game in town when it comes to outsourcing," says Christy, noting that the Philippines has been "quietly" developing its own outsourcing industry. And within this sector, he says, eTelecare Global Solutions, Inc. (Nasdaq: ETEL) is a leading player.
The $200-million-market-cap company is based in Manila, but also has 3,000 employees in the United States. He says that customers include Sprint Nextel Corp. (NYSE: S) and AT&T Inc. (NYSE: T). Its 2007 revenue, he says, should be about $250 million.
Christy says that ETEL went public last March at $13.50, but has since slumped.
"Investors have been nervous about ETEL's exposure to Vonage, one of its key customers. But at less than 11 times estimated 2008 earnings, the market appears to be pricing in a lot of bad news and ignoring ETEL's strong growth potential," Christy says.
Over the next three to five years, he says, analysts expect 20% annualized earnings growth. In time, he says, ETEL should sign up more customers who can offset the Vonage exposure.
Meanwhile, he says, the company has $1 per share in net cash on the balance sheet and "robust cash flow."
"As with any emerging market firm, there will be plenty of volatility, but a small position in ETEL could be very rewarding over the long haul," he says.
In introducing his Asian advertising small-cap idea, Christy recalls China advertising firm Focus Media Holding Ltd. (Nasdaq: FMCN); he recommended the stock two years ago and sold after the price doubled.
And while he felt that Focus Media got a bit expensive for his taste, Christy says he still likes the Chinese advertising sector, which he feels remains a "great way to play the booming consumer market." To participate, he now recommends VisionChina Media Inc. (Nasdaq: VISN).
"While FocusMedia sells ad space on flat-panel screens mounted in elevators and in stores, VISN does much the same thing in buses," he says. Its network, he says, covers 25,000 buses in 14 major cities in China.
VISN went public in December, but according to Christy, the "timing was lousy and the shares plunged out of the gates."
"I'd be willing to bet VISN is being overlooked by the same folks who might have pounced on it a year earlier,” he says. “These gyrations aside, VISN looks interesting for those willing to consider a small position."
Finally, Christy asks, "What's the deal with Japan?"
"Investor sentiment is about as low as it was back in 2003 when the Nikkei hit a 20-year low. And then the government comes out with a GDP number that blows away even the most optimistic estimates," he says.
Interestingly, Christy has been bullish on Japan since he first launched his newsletter two years ago.
"It has been a lonely journey," he says. But he remains undeterred, suggesting, "I think there are some very compelling opportunities developing that the skeptics would be wise to consider."
First, he says, investors should forget the "macro gyrations, politics and all the 'carry trade' hooey."
"Ivy League economists who have spent decades in Japan still can't make sense of most of it. Leave that for the currency traders," he says.
Christy says that in his view, it all comes down to valuation.
"Some of Japan's very best companies look cheaper than anytime in recent memory," he says. "And a lot of Japanese small caps are trading at less than book value."
To play this trend, Christy says, "Investors seeking small-cap exposure to Japan should check out the SPDR Russell/Nomura Japan Small Cap ETF (ASE: JSC)."
For more on VisionChina Media Inc., read our Check on China spotlight on the company.
For 25 years, Steven Halpern has conducted an annual survey asking the leading newsletter advisors to select their favorite stocks for the year. His 2008 report features 120 top picks. You may download the report for free by clicking here.
