Fuqi International (FUQI): Could become a real powerhouse

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

From Cabot Wealth Advisory, 2/11/10. Sign up for free Cabot Wealth Advisory e-newsletter

In the spirit of broadening my horizons to beyond strictly growth stocks, I’m going to quasi-recommend a stock that has been correcting since last September. I really admired Fuqi International (FUQI) as it roared from 3 in March 2009 to 33 in September, but I never found the right buy point for the stock.

The story is a good one, as Fuqi International is a Chinese jewelry company that sells mostly gold jewelry to wholesalers, who then retail it within China. The appetite of Chinese consumers for gold is a long-standing taste, as many Chinese families regard gold as a suitable way to safeguard family wealth. Buy when times are good; sell when times are bad.

Times have been quite good for Fuqi, which reported a 135% jump in earnings in Q3 on a 36% gain in revenues. The after-tax profit margin was 14.8%. The roster of institutional investors has climbed from 17 in Q2 to 46 at last count.

I don’t usually recommend stocks that are in downtrends, but I’ve always been fascinated by the Fuqi story. With a P/E ratio of just 8, this looks like a great buy here, with two caveats. First, the stock needs to find some support and build a credible base before it can begin to advance. Second, the company’s Q4 earnings report (which hasn’t been scheduled yet) needs to show positive results.

If FUQI can stop falling and get support from a good earnings report, it can be a real powerhouse. Just don’t forget the “if.”

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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.

Fuqi International (FUQI): Catering to China’s growing middle class

By Paul Goodwin , Analyst and Editor of Cabot China & Emerging Market Report?
From Cabot Wealth Advisory, 5/21/09 Sign up for free Cabot Wealth Advisory e-newsletter

My investing idea today is a jewelry company, which isn’t the sector that usually springs to mind when growth investing is mentioned. But Fuqi International (FUQI) (pronounced Foo-chee) is a Chinese jewelry manufacturer that’s catering to an enormous appetite for gold among China’s increasingly affluent people.

In many countries, China and India among them, gold jewelry isn’t just an adornment, it’s a way to accumulate wealth and pass it along to future generations. Long experience has taught many people that necklaces around your neck and bracelets on your wrists are more portable and more reliable  than volatile currencies and fragile banks. So, as personal income rises, so does the amount of money heading into gold jewelry.

Fuqi International (FUQI) has grown from a $15 million a year business in 2002 to sales of $399 million in 2008. And in some ways, the layoffs and hard times in China have only reinforced the need for tangible commodities that can be used when a rainy day arrives.

Fuqi runs everything—management, marketing, design, sales and manufacturing—from one 53,000-square-foot building, bringing out 300 new designs a month and selling through its 30 provincial distributors and 700 direct sales agents.

Sales in 2008 were up 153% from 2007, and earnings continue to rise. A quarterly report that showed a 45% jump in earnings on a 41% gain in sales gave FUQI a lift on May 15, shooting it from 6 to 11 in just a few days. The stock has now corrected to just under 10, and looks very healthy.

Shakespeare may be right that “all that glisters is not gold,” but gold is doing quite well for Fuqi International.

Editor’s note: Paul Goodwin is the editor of Cabot China & Emerging Markets Report, the top performing newsletter for five years, according to Hulbert Financial Digest. If you’d like to follow some emerging markets stocks that are making good on their potential, you should consider a no-risk trial subscription to the report. Information on Introductory Subscription to Cabot China & Emerging Markets Report.