From Cabot Wealth Advisory 5/5/08 Sign up for free Cabot Wealth Advisory e-newsletter
If a stock has everything, chances are that everyone has it. It would be great to uncover an undiscovered stock with a strong chart, excellent fundamentals and unlimited prospects. Unfortunately, the only way to get that package is to find a stock that is so new, so thinly traded or so cheap that most investors won’t give it a look.
Well, you may be in luck, because my investing idea is a stock that hits the downside trifecta: it’s new, thinly traded and cheap.
Here’s the story. The company is called VanceInfo (VIT), formerly called WorkSoft. The company is an 11-year-old Chinese IT outsourcing enterprise that serves companies in high tech, financial services, manufacturing, telecom and retail. With clients such as IBM, HP, Oracle, GE, Sony, Panasonic and lots of others, it’s clear that some big players are taking the company seriously.
What drew me to the stock was, first, its numbers. With triple-digit revenue growth in six of its last seven quarters (and 96% in the other), and triple-digit earnings growth in the latest three, VanceInfo is on a very hot track. This isn’t a flash in the pan, either, as revenue growth for the latest three years has been 90%, 88% and 116%.
Second, I like that 85% of the company’s 2006 revenues came from U.S. companies. This isn’t patriotism on my part; rather it’s an indication of how much potential growth the company can experience in China as more industries there begin to need IT outsourcing.
The chart for VIT (NYSE) shows a stock that came public in December 2007 at 9, and then got nearly cut in half by the Winter Bear market, falling to below 5 before rebounding. Now back at 9 after a bumpy rise on pretty thin volume (112,000 shares a day, on average), the stock is ready to take aim again at a double-figure price that will make it more attractive to big institutional investors.
Low volume, low price and a recent IPO are all risk-heightening factors, but every once in a while, this kind of bet can pay off.
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.