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Summary: Leading hedge fund and mutual fund managers that have a long-term track record of generating high alpha are severely under-weight the China products group, including China-based manufacturing companies, by a factor of 20. While some of this can be explained by virtue of them being foreign stocks, and many of them being in the small-cap space, the extent of the under-weighting is a bit surprising. Their best picks in the china products group are Yingli Green Energy (NYSE:YGE), Trina Solar Ltd. (NYSE:TSL) and Daqo New Energy Corp. ADS (NYSE:DQ). Their best sell idea is China Kanghui Holdings (NYSE:KH).

What are the top new buy and sell ideas of high alpha generating funds among China products-based companies? In this article, through research of the latest available institutional 13-F and 13-D/G (5% ownership) filings (as recent as 10 days old), we identify the stocks in this group that were most bought and sold by a select group of high alpha generating funds numbering less than 100. This select list represents less than one-half of one percent of the total number of U.S. equity investment funds, but together these high alpha or guru funds control almost ten percent of total U.S. equity discretionary fund assets. The credentials of each high alpha fund that justify its inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing the gurus in this article.

The savvy investor may consider leveraging this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru best picks. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation.

This series is a follow-up to our previous series that identified top guru holdings by industry group. It updates that information for the most recent quarter, and identifies the stocks in the group most bought and sold by guru funds during the quarter, their top holdings in the group, and the number of guru funds that hold the stock. Based on this analysis, we determined that guru funds are severely under-weight in the China products group by a factor of 20. While one can expect some under-weighting as China-based companies are most likely over-owned among local China and Hong Kong funds, and also because many of these trade at prices and market-caps below the threshold that most funds would be interested in, the extent of the under-weighting is worth paying attention to. The following are their top buys, sells and holdings:

  • Yingli Green Energy ADS (YGE) is a Chinese manufacturer engaged in the design, development, marketing, manufacture, installation, and sale of photovoltaic (PV) products, including PV cells, PV modules, and integrated PV systems, as well as poly-silicon ingots, blocks, and wafers. Guru funds aggressively bought a net $173 million of YGE during the quarter, adding significantly to their prior $16 million position in the stock. This includes $189 million bought by Maverick Capital countered by a smaller $16 million sell by SAC Capital Advisors LP. With the increased position this quarter, guru funds now control 15% of the outstanding shares of YGE, and they added to their position in the quarter, making them bullish as a group on YGE. The stock trades at a forward price-to-earnings (P/E) ratio of 7-8, near the bottom of its historic P/E range. Analyst targets are in the mid-teens, almost twice above current levels; and of the 25 analysts covering the stock, nine rate it a buy/strong buy, 15 a hold and only one rates it at underperform.
  • Trina Solar Ltd ADS (TSL) is a Chinese manufacturer of solar modules. Guru fund aggressively bought a net $67 million of TSL during the quarter, adding significantly to their prior $33 million position in the stock. This includes $98 million bought by Maverick Capital countered by $10 million sold by Kingdon Capital Management LLC, $9 million sold by SAC Capital Advisors LP, and $8 million sold by Zweig-DiMenna Associates. Guru funds together control 6.2% of the company’s outstanding shares, and they added aggressively to their position in this quarter, making TSL an attractive buy candidate. TSL trades at a forward P/E of 7, in the bottom half of its historic P/E range. Analyst targets are in the $30-$40 range, significantly above the current $20 price; and of the 27 analysts covering the stock, 19 rate it a buy/strong buy, seven a hold and only one rates it at underperform.
  • Mindray Medical International ADS (NYSE:MR) is a Chinese developer of patient monitoring, life support and in-vitro diagnostic products and medical imaging systems. Guru funds reduced their prior $119 million position in the stock by $19 million during the quarter. Joho Capital was the only seller in the stock at $19 million.
  • China Yuchai Ltd. (NYSE:CYD) is a manufacturer and distributor of diesel engines for light, medium and heavy-duty trucks and buses in China. Guru funds sold $10 million of their prior $11 million position in the stock, including $8 million sold by Capital Growth Management LP and $2 million sold by Driehaus Capital Management. CYD trades at a forward P/E of 5, near the bottom half of its historic P/E range, while earnings are projected to fall from $4.53 in 2010 to $3.97 in 2011. The stock has been weak since the company missed analyst estimates for the March 2011 quarter in early May, and it has weakened even more after the departure of a key executive in late May, and trades at a much better valuation at forward 5 P/E and we would not be sellers here.
  • China Kanghui Holdings ADS (KH) is a Chinese developer of proprietary orthopedic implants and associated instruments for domestic and emerging markets. Guru funds reduced their prior $12 million position in the stock by $9 million during the quarter, including $7 million sold by Joho Capital and $2 million sold by Driehaus Capital Management. KH trades at a forward P/E of 26, at the top of its historic P/E range, while earnings are projected to increase relatively modestly from 68c in 2010 to 74c in 2011 to 92c in the 2012 fiscal year. Analyst targets are in the mid- to high-$20s, slightly above the current $24 price; and all six analysts covering the stock rate it a buy/strong buy. Guru funds sold KH in the mid- to high-teens, so now at a 50% higher price it is definitely in sell territory based on its premium valuation.
  • Jinkosolar Holdings Co ADS (NYSE:JKS) is a Chinese manufacturer of silicon wafers, solar cells, and solar modules. Guru funds sold out of their prior quarter $8 million position, all $8 million being sold by Kingdon Capital Management LLC.
  • China Ming Yang Wind Power Group Ltd. (NYSE:MY) is a Chinese manufacturer of megawatt-class wind turbines sold to power producers and wind farm operators. Guru funds sold out of their prior quarter $8 million position, all $8 million being sold by SAC Capital Advisors LP.
  • Renesola Ltd. ADS (NYSE:SOL) is a Chinese manufacturer of mono-crystalline and multi-crystalline wafers for solar power products. Guru funds added $2 million to their $3 million position in the stock, including $5 million bought by Kingdon Capital Management LLC countered by a $3 million sell by SAC Capital Advisors LP.
  • JA Solar Holdings ADS (NASDAQ:JASO) is a Chinese manufacturer of mono-crystalline and multi-crystalline solar cells for solar modules and systems. Guru funds sold out of their prior quarter $5 million position, all $5 million being sold by SAC Capital Advisors LP.
  • Fushi Copperweld Inc. (NASDAQ:FSIN) is a Chinese manufacturer of copper-clad and other bimetallic wire products for telecom, utility and automotive markets. Guru funds hold $20 million of this stock, all $20 million being held by Royce & Associates LLC.
  • Fabless networking chip company RDA Microelectronics ADS (NASDAQ:RDA) is a Chinese designer of RF and mixed-signal semiconductors for cellular, broadcast and connectivity applications. Guru funds hold $15 million of this stock, all $15 million being held by Joho Capital.
  • Sinovac Biotech Ltd. (NASDAQ:SVA) is a Chinese developer of vaccines for infectious diseases such as hepatitis A and B and influenza. Guru funds hold $15 million of this stock, all $15 million being held by Royce & Associates LLC.
  • China Petroleum and Chemical Corp. ADR (NYSE:SNP) is a Chinese company engaged in the exploration, development, production and marketing of crude oil and natural gas properties primarily in China. Guru funds hold $10 million of this stock, $9 million being held by Fisher Asset Management LLC and the other $1 million being held by SAC Capital Advisors LP.
  • Daqo New Energy Corp ADS (DQ) is a Chinese manufacturer of poly-silicon for use in photo-voltaic products such as ingots, wafers, cells and modules. Guru funds hold $10 million of this stock, including $9 million held by Kingdon Capital Management LLC and $1 million being held by Driehaus Capital Management. During the quarter, three guru funds adding a total of $4.1 million, including Kingdon Capital Management LLC ($2.5 million), Driehaus Capital Management ($1.1 million) and SAC Capital Advisors LP ($0.5 million). DQ trades at a forward P/E of 3, at the bottom of its historic P/E range, while earnings are projected to increase from $1.96 in 2009 to $2.69 in 2010. Analyst targets are in the $15-$25 range, more than 100% above the current $8 price; and of the four analysts covering the stock, three rate it a buy/strong buy and only rates it at underperform. We believe shares are attractively priced and would start accumulating into the weakness.
  • Cogo Group Inc. (COGO) is a Chinese designer of digital media modules for mobile phones, portable media players, GPS devices and digital cameras. Two guru funds hold $7 million of this stock, including $5 million by Royce & Associates LLC and $2 million by Kingdon Capital Management LLC.
  • Three S Bio ADS (NASDAQ:SSRX) is a Chinese developer of genetically engineered, protein-based products for nephrology, oncology and infectious diseases. Two guru funds hold $7 million of this stock, including $6.5 million by Royce & Associates LLC and another $0.5 million by Hussman Econometrics Advisors.
  • Harbin Electric Inc. (NASDAQ:HRBN) is a Chinese manufacturer of electric motors, including industrial rotary, linear, and specialty motors. Two guru funds own $7 million of this stock, including $5 million by Al Frank Asset Management and $ 2million by Glenhill Advisors LLC.
  • Spreadtrum Communications Inc. (NASDAQ:SPRD) is a Chinese designer of baseband and RF processors and chips used in wireless handsets. Two guru funds own $4 million of this stock, including $3 million by SAC Capital Advisors LP and $1 million by Balyasny Asset Management LLC.
  • LDK Solar Co., Ltd. (NYSE:LDK) is a Cayman Islands-based Chinese manufacturer of multi-crystalline solar wafers used to manufacture solar cells and modules. Two guru funds own $4 million of this stock, including $3 million by Kingdon Capital Management LLC and $1 million by SAC Capital Advisors LP.
  • SORL Auto Parts Inc. (NASDAQ:SORL) is a leading supplier of automotive brake systems and other key safety related auto parts to automotive original equipment manufacturers, or OEMs, and the related aftermarket both in China and internationally. The Company's products are principally used in different types of commercial vehicles, such as trucks and buses. Two guru funds own $2 million of this stock, including $2 million by Royce & Associates LLC and $0.4 million by GAMCO Investors.

Table

Company

Ticker

Market Value of Guru Holdings

Guru New Buys

Guru New Sells

Number of Gurus in Stock

Top Buys and Sells

Yingli Green Energy

YGE

$189 million

$189 million

($16) million

2

Trina Solar Limited

TSL

$100 million

$98 million

($31) million

2

Mindray Medical Intl Ltd.

MR

$100 million

$0 million

($19) million

3

China Yuchai Intl Ltd.

CYD

$1 million

$1 million

($10) million

1

China Kanghui Holdings

KH

$3 million

$0 million

($9) million

2

Jinkosolar Holding Co.

JKS

$0 million

$0 million

($8) million

1

China Ming Yang Wind Power

MY

$0 million

$0 million

($8) million

0

Renesola Ltd.

SOL

$5 million

$5 million

($3) million

1

JA Solar Holdings Co.

JASO

$0 million

$0 million

($5) million

1

Top Guru Holdings

Fushi Copperweld Inc.

FSIN

$20 million

$5 million

$0 million

1

RDA Microelectronics Inc.

RDA

$15 million

$1 million

$0 million

1

Sinovac Biotech Ltd.

SVA

$15 million

$0 million

($1) million

1

Other Stocks Held by Two or More Gurus

China Petroleum & Chemicals

SNP

$10 million

$1 million

($1) million

3

Daqo New Energy Corp.

DQ

$10 million

$4 million

$0 million

3

Cogo Group Inc.

COGO

$7 million

$0 million

($2) million

2

Three S Bio Inc.

SSRX

$7 million

$0 million

($0) million

2

Harbin Electric Inc.

HRBN

$7 million

$2 million

$0 million

2

Spreadtrum Communications

SPRD

$4 million

$1 million

($2) million

2

LDK Solar Co Ltd.

LDK

$4 million

$4 million

($1) million

2

SORL Auto Parts Inc.

SORL

$2 million

$0 million

$0 million

2

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: China Products Group: 3 Buy Ideas and 1 Sell Idea From High Alpha Funds