Focus Media Holdings (FMCN): On Cabot’s China watch list

By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Markets Report

From Cabot Wealth Advisory, 6/7/10. Sign up for free Cabot Wealth Advisory e-newsletter

Obviously any stock recommendation I make today will come with a list of warnings attached. There’s nothing in a good combination of revenue and earnings growth and a strong chart that can reverse the trend of the market. Stocks that resist the downward pull of the market are worth studying and make great additions to watch lists.

But a market that’s trending down puts pressure on all stocks, even those that are going up.

So my pick today is a stock for your watch list that’s an old friend of the Cabot China & Emerging Markets Report. We made excellent money on this stock back in 2006, but the company has been through the mill recently and could represent a good value here.

Focus Media Holdings (FMCN) was a pioneer in the out-of-home advertising business in China, sticking flat-panel video screens in elevator lobbies, malls, buses, chain stores and other high-traffic areas and then selling screen time to advertisers. It was a brilliant strategy, and it spawned a host of imitators in China, most of whom have struck deals with different transportation systems and locations to display content and ads.

The company hasn’t recorded a quarterly loss in years, but experienced four quarters of declining earnings starting in Q4 2008. On the good side, there’s no debt and the stock is perfectly liquid.

But the price is a problem. FMCN took an unusually large hit during the Great Recession, plummeting from 66 in late 2007 to 5 in March 2009. The recovery since then has been substantial, but the stock’s price recovered only to a peak of 19 on March 17, and is now trading in a tightening wedge at 15.

It may be that Focus Media was a one-trick pony and just reaped the benefits of being the first on the scene in an untapped industry. But I’m keeping FMCN, which has an attractive P/E ratio of 15 on my Watch List. I’m especially interested in seeing what happens when that wedge on the stock’s chart makes its move—if the move is to the upside, it could be explosive.

If you’d like to keep track of the latest and greatest in the world of emerging market stocks, I think a subscription to Cabot China & Emerging Markets Report would be a great first step. In every issue I give subscribers some perspective on what’s happening in China and elsewhere, and the advice that accompanies each issue and update has kept my subscribers safely on the sidelines for much of this cranky market’s worst tantrums. A click on this link will get you started: Cabot China & Emerging Markets Report.


Paul GoodwinPaul Goodwin
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report

A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.