Hedge Funds Are Buying These 3 Chinese Stocks With Encouraging Sales Trends

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 |  Includes: CISG, MR, SFUN
by: Kapitall

Historically, investors have been hesitant to invest in Chinese companies due to the lack of financial information. Recently the political, and macro environment has added to that risk. In the list below we found hedge funds making an exception with 3 Chinese stocks.

To create the following stock list we began with a universe of Chinese stocks trading on the U.S. exchanges. We looked for those with a bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.

We wanted to look for at least 1 positive fundamental responsible for this bullish reaction from hedge fund managers. Specifically, we found candidates with strong sales trends, comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables, the healthier the company's revenue.

We looked for faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.

The List

Our final list consisted of 3 Chinese stocks with encouraging top-line growth.

For aninteractive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Do you agree with their sentiment? Use this list as a starting point for your own analysis.

1. Cninsure Inc. (NASDAQ:CISG): Provides insurance brokerage and agency services, and insurance claims adjusting services in the People's Republic of China.

  • Market cap at $312.62M, most recent closing price at $6.26.
  • Net institutional purchases in the current quarter at 1.5M shares, which represents about 5.3% of the company's float of 28.29M shares. The 2 top holders of the stock are Norges Bank Investment Management, and FIL Ltd.
  • Revenue grew by 4.12% during the most recent quarter ($435.83M vs. $418.6M y/y). Accounts receivable grew by -29.3% during the same time period ($434.6M vs. $614.74M y/y). Receivables, as a percentage of current assets, decreased from 21.21% to 14.52% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).

2. Mindray Medical International Limited (NYSE:MR): Develops, manufactures, and markets medical devices worldwide.

  • Market cap at $4.4B, most recent closing price at $37.37.
  • Net institutional purchases in the current quarter at 9.9M shares, which represents about 11.27% of the company's float of 87.87M shares. The 2 top holders of the stock are Commonwealth Bank of Australia, and Baillie Gifford and company.
  • Revenue grew by 19.68% during the most recent quarter ($316.12M vs. $264.13M y/y). Accounts receivable grew by -8.35% during the same time period ($208.83M vs. $227.86M y/y). Receivables, as a percentage of current assets, decreased from 24.26% to 17.11% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).

3. SouFun Holdings Ltd. (NYSE:SFUN): Provides marketing, listing, technology, and information consultancy services to real estate and home furnishing industries in the People's Republic of China.

  • Market cap at $400.58M, most recent closing price at $21.56.
  • Net institutional purchases in the current quarter at 2.3M shares, which represents about 12.17% of the company's float of 18.90M shares. The 2 top holders of the stock are General Atlantic LLC., and FIL, Ltd.
  • Revenue grew by 29.58% during the most recent quarter ($147.54M vs. $113.86M y/y). Accounts receivable grew by -30.07% during the same time period ($38.77M vs. $55.44M y/y). Receivables, as a percentage of current assets, decreased from 21.2% to 19.92% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).

* Institutional data sourced from Fidelity, all other data sourced from Finviz

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Rebecca Lipman, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.