If you invest stocks like a professional venture capitalist does, you will give the highest priority to business execution, and you will pick the brightest management team in the prosperous or promising market sectors. Following this philosophy, the only pick with confidence is Giant Interactive Group Inc (NYSE:GA). GA operates in the online gaming sector, which is a high growth and high profit sector in China. Even with the turmoil of the economical crisis, the online gaming market of China still grew 61.7% in 2008. (Read the market report, and the English translation.)
GA is one of the top players in the Chinese online gaming market. With zero debt, current ratio 9+, profit margin ~70%, PE 9, PEG well under 1, dividend yield 2.6%, and strong Q4 08 earnings, GA holds a financial status stronger than majority publicly traded companies, which allows it to withstand severe economical conditions and makes long term investment fool-proof safe.
What makes GA stand out most is its founder and chairman, Yuzhu Shi, who can well be considered as the Steve Jobs of China. Shi’s entrepreneur legend started as a one-man software company, where his marketing talent took his company off, his company grew so fast and big that in the effort to set it as a model company (the Chinese way) the Chinese central and provincial government pushed the company to bankruptcy in an attempt to build the tallest skyscraper in China (just like U.S. government’s push of financial institutes for providing “affordable housing” in the 90s led to present housing bubble and subprime crisis). Shi later on reemerged as a successful businessman by selling a branded melatonin compound as a health product. With his refined marketing and business skills, his new business experienced phenomenal success. Shi then decided to pay back the losses of his skyscraper investors, although he could safely choose not to do so. Shi’s later entrepreneur endeavors made his genius in marketing and business even more obvious. Similar to Steve Jobs, Shi succeeded in almost every area his touched, like having a magic wand.
Thanks to the present crisis, the price of GA at current level presents a bargain, promising a potential of 2-3x gain within 1-2 years. This number is based on Shi’s personality and capability. GA’s IPO price was ~$15, and soon reached ~$20. Based on the conscience Shi showed for his skyscraper investors by paying back their investment for the failed project (compare this with Madoff), it can be expected with confidence that Shi will manage to run GA so well that GA will reach at least $15, so his IPO investors are clear of losses. With today’s price, this presents a gain of greater than 200%. With the momentum of the market and this stock, the 2x gain may be reached rather quickly (especially so considering the ~10x short ratio, a short squeeze is likely to happen, which could shoot up the price at extraordinary rate). Considering the ego for Shi to prove himself as one of best businessmen in China again, Shi will need to make GA reach above $20. Shi is quite capable of achieving this, hence a 3x gain over today’s price can be comfortably expected.
Having said all that, due diligence is highly encouraged for an investment strategy customized to your own situation, to take advantage of the price level created by the present crisis to maximum extend, and to make a good fortune out of the crisis!
Disclosure: Long GA.