The Chinese Invasion: IPO Mania Is Back!

by Tony Sagami

Are you the kind of investor who likes to invest in initial public offerings or IPOs? If you pick the right companies, there is a mountain of money to be made.

The go-go days of the internet boom may be long gone, but the fertile feeding ground for IPOs these days is not Silicon Valley, but outside the United States.

Did you catch the news about the largest IPO in the world last week? You should have because it happened on the New York Stock Exchange.

Don't feel bad if you didn't know about it because it got little media attention since it wasn't a U.S. company. It was the Brazilian division of Spanish bank Banco Santander SA.

My good friend Martin Weiss spent part of his youth in Brazil, was one of the first to recognize the Brazilian economic boom, and expects that Banco Santander is the start of many more Brazilian IPOs to come.

Brazil isn't the only country generating large, exciting IPOs. The second largest IPO in the world this year wasn't Brazilian ... it was Chinese.

Chinese IPO Market Is Red Hot

China State Construction Engineering Corporation is one of the largest (and most profitable) construction companies in the world. It raised $7.3 billion when it went public in July.

China State Construction Engineering, you see, has a hidden weapon. Its largest shareholder is the Chinese government, so who do you think Beijing hires when it has a giant construction project?

China State Construction built the Shanghai World Financial Center.

And unlike the United States with our open bidding that awards jobs to the lowest bidder, the big public works contracts are awarded without the scrutiny of the public and pesky bean counters.

My point, however, isn't that you should invest in China State Construction Engineering, but that you should be paying careful attention to the Chinese IPO boom.

The IPO market has been dominated by Chinese stocks. Out of the 10 largest IPOs in the world this year, five of them have been Chinese companies.

In the third quarter of this year alone, a whopping 63 percent of the global IPO market value came from 62 Chinese companies.

The United States, by the way, was second at 8.4 percent and India was third at 7.2 percent of global capital.

The reason for the tsunami of Chinese IPOs is that the Chinese government lifted a 10-month moratorium on them in June. Since then, Chinese companies have raised $18.4 billion in IPOs.

The list of these newly minted public Chinese companies is filled with attractive long-term fundamentals:

  Wynn Macau (1128.HK), which pulls in $4.4 BILLION of revenue PER DAY at its China casino, went public last week.

  Glorious Property Holdings (0845.HK), a gigantic Chinese real estate developer, raised $1.28 billion from its IPO.

  China South City Holdings (1668.HK) is a consolidator and exporter of textiles, plastics, chemicals, electronics, metals, and paper.

  China Lilang (1234.HK) is the LARGEST men's apparel retailer in China.

China Metallurgical was involved in the construction of the "Bird's Nest" stadium, which was built for the Beijing 2008 Olympic Games.

  Peak Sport Products (1968.HK), a Chinese sportswear and athletic manufacturer and retailer, is on its way to becoming the Nike of China. If you're a basketball fan, you've seen their shoes on Shane Battier, Dikembe Mutombo, and Jason Kidd.

  Shanda Games (Nasdaq:GAME), operates a half dozen wildly popular internet-based video games.

  China Metallurgical (1618.HK) was one of the primary builders of Bird's Nest stadium used for the Beijing Olympics and perhaps the one recent IPO with the most promising long-term fundamentals.

There are even more Chinese IPOs on the way: Wilmar China Ltd., the world's largest distributor of palm oil, and Powerlong Real Estate Holdings, owners of some super-prime Chinese real estate, are the next companies scheduled to go public.

The last Chinese IPO that I recommended was Duoyuan Global Water (NYSE:DGW) and it is approaching a DOUBLE from where I recommended it to my Asia Stock Alert subscribers.

It is a little rich now after that spectacular run, but it is one of the most direct beneficiaries of the multi-billion dollar water pollution cleanup efforts going on in China.

In spite of those spectacular fundamentals, I've told my subscribers to wait for a better entry price and my signal before buying more.

I also told them to hold off because I found an even better Chinese IPO opportunity — not from a forthcoming IPO, but from one that already hit the market and declined from its initial IPO price. These fallen angels are called "busted" IPOs on Wall Street.

My Latest Asia Stock Alert Recommendation

I'm not telling my Asia Stock Alert subscribers to buy the busted IPO, but instead to buy the parent company, which is selling for a fraction of its underlying intrinsic value.

Even after the recent IPO, the parent company still owns 71 percent of the outstanding stock. The current market value of those shares is roughly $2 billion.

The parent company received $1 billion of cash from the IPO to add to the $780 million of cash it already had. We're talking about almost $1.8 BILLION of cold hard cash.

But get this; the parent company has a market value of only $3.3 billion, which means that you are getting $2 billion of the subsidiary stock as well as $1.8 billion of cash.

The bottom line is that buying stock in the parent company today is like buying $1 worth of assets for only 85 cents on the dollar. I'll take that deal all day long.

Lastly, not only can you buy this fantastic company for 85 cents on the dollar, but you also get the parent company's well-established, very profitable company for FREE!

This is one of those rare instances where the sum-of-the-parts is worth more than the parent company on its own. That, my friends, is a classic Benjamin Graham-style bargain that you shouldn't pass up.

It is not too late to buy the stock either. I just told my Asia Stock Alert subscribers to buy it last Friday night, so it is still every bit the bargain today.

If you'd like to join my newsletter family and get on board this stock, call my office at 800-285-7264 and they'll sign you up and send you my report on this company with specific buy instructions to maximize your profits.

I hope you'll join me, and I am confident that you'll be very pleased with the results.

Regards,

Tony

P.S. Larry Edelson will be issuing his landmark resource recommendations later this morning. It's too late to sign up on the Web. But if you call right now, you can still get on the email distribution list in time. The number is 800-604-3649.