There are a number of stocks that have provided investors with amazing returns over the past couple of years. If you invested in Amazon.com (NASDAQ:AMZN), Chipotle (NYSE:CMG), Netflix (NASDAQ:NFLX), or Baidu (NASDAQ:BIDU), even just a couple years ago you have seen larger gains than what many stocks could hope for in a lifetime. These companies were managed well and they all were positioned to capture a massive amount of growth due to an upward trend for their products and services. The position these companies were in was very obvious and yet all of these stocks had a significant amount of short interest from investors who did not believe in the concept, industry or valuation.
We have seen a significant market decline in the past couple of weeks, which has created excellent buying opportunities in most stocks, including ones that could end up being the next Netflix or Baidu. There is no doubt, the market is full of stocks that are going to be worth 4 to 5 times as much or more, than they are today. All of these companies are positioned for major growth and all of them have a fair share of doubters (short interest). With these stocks, it can often pay to buy and hold them for 2 to 5 years because the gains can become exponential if you do. I bought Baidu a few years ago for about $6.70 per share, however, I sold too early and missed gains due to trading in and out. When you can invest in companies that have a business model that puts them right in front of a major growth trend, there is no need to play short term or worry about market corrections. Here is a look at a handful of companies that share some similarities exhibited by Netflix, Baidu, and others just before those stocks made explosive moves higher:
E-Commerce China Dangdang (NYSE:DANG)
shares are trading around $9.98. Dangdang is based in China and is often likened to be the Amazon.com of China. These shares have fallen from a 52-week high of $36.40. The 50-day moving average is $11.76. Dang has earnings estimates around break even for 2011, and 8 cents for 2012. This puts the PE ratio at sky high levels but in time, growing profits could make the PE ratio more reasonable. The PE ratio was sky high for Amazon (AMZN
) when it was just getting started and that did not stop it from being an incredibly good investment. DANG has posted extremely strong sales growth and with the economy in China poised to grow much faster than the rest of the world for many decades, this stock has explosive potential. The Dangdang website is already ranked
as the 68th most popular site in China, and could continue to climb over the years. DANG has a current market cap of about $780 million and an enterprise value of about $526 million due to the cash on the balance sheet of roughly $250 million. An enterprise value of only $526 million for a Internet company, with the 68th most popular website, in a country like China is way too cheap.
LDK Solar (NYSE:LDK) is trading at $6.30. The 50-day moving average is $6.70 and the 200-day moving average is $10.19. LDK has very strong earnings potential and based on guidance from the company, it appears it could earn over $3 per share in 2011. This puts the PE ratio at about 2.5. This company appears to have very strong backing by the Chinese Government because the China Development Bank has made a multi-million dollar investment in LDK and has offered it a multi-billion line of credit. The Chinese government has set solar goals under a program called the "Golden Sun." According to Solarbuzz: "On-grid installations in China are projected to double in 2011 as Chinese incentive policies increase the pace of large and utility-scale PV installations." and "....the PV market in China is ready to deliver strong growth through 2015."
Another major short-term catalyst could be a spinoff IPO for LDK's polysilicon division. This IPO is expected to be valued at $1 billion and underwritten by Deustche Bank for the Hong Kong Stock Exchange. The Dow Jones Asian IPO Watch for August 8, 2011 lists LDK as one of the IPOs. Renren, Inc. (NYSE:RENN)
is trading at $8.04. Renren is a social networking company in China. Many call it the "Facebook" of China. The 52-week high is $24. This company went public very recently. Due to this, it's hard to find accurate earnings estimates for the company. These shares have dropped from recent highs of around $14 to current levels, but they are still fairly rich if you consider the revenue generated by this company with the market capitalization. This stock should see a boost when Facebook goes public.
Jinkosolar Holding Co., Ltd. (NYSE:JKS)
is trading at $15.23. The 50-day moving average is $22.90 and the 200-day moving average is $25.36. JKS has earnings estimates of about $5.78 per share for 2011, and $4.84 for 2012. This puts the PE ratio at only 3. These shares have received multiple buy ratings with 12-month price targets of about $40, so there is considerable upside in the next year but even more so in the next few years. The solar stocks have very low PE ratios now, so if more reasonable PE ratios (multiple expansion) are accepted by investors in the future, this stock could be much higher. A PE ratio of 8 times 2011 earnings would still be well below the market, but it would make this a $48 stock.
Giant Interactive (NYSE:GA)
is trading at $8.20. Giant Interactive is one of the leading online gaming companies in China. These shares have a 52-week trading range of $6.03 and $9.45. The 50-day moving average is $7.53 and the 200-day moving average is $7.44. GA earnings estimates are about 65 cents per share in 2011 and 73 cents for 2012. This puts the PE ratio at about 11, which is low for one of the leading online gaming companies. To provide exceptional returns to investors, this company needs to grow earnings and see multiple expansion.
Perfect World Co., Ltd. (NASDAQ:PWRD)
is trading at $17.51. PWRD is one of the leading online gaming companies in China. These shares have fallen from a 52-week high of $34.40. The 50-day moving average is $19.31 and the 200-day moving average is $22.91. PWRD earnings estimates are about $2.62 per share in 2011. This puts the PE ratio at about 8, which is very low for one of the leading online gaming companies. The balance sheet is extremely strong with almost $5 per share in cash. The substantial amount of cash
it has on the balance sheet will allow it to invest in future high growth opportunities. To provide exceptional returns to investors, this company needs to grow earnings and see multiple expansion.
Yoku.com Inc., (NYSE:YOKU)
is trading at $26.02. Some call this company the "Netflix" of China. The 52-week range is $19.78 to $69.95. The 50-day moving average is $32.28 and the 200-day moving average is unavailable since this company recently went public. YOKU has earnings estimates for about a loss of 13 cents per share for 2011 and a small profit of 2 cents for 2012. These shares have dropped from recent highs of around $35. I would wait to see if these shares have bottomed before considering an investment here. Of all the companies mentioned here, this one appears to be the most speculative due to the lack of earnings, but the company is growing fast.
Netflix, Inc. (NFLX)
shares are trading around $244. Netflix is a leading Internet site for movie rentals. The 50-day moving average is $265.20 and the 200-day moving average is $224.01. Earnings estimates for NFLX are $4.67 per share in 2011. The 52-week range is $119.65 to $304.79. Near the lows of 2009, NFLX traded for about $20 and rose to about $300, providing exceptional returns to investors.
shares are trading around $150.15. Baidu is a leading Internet search site in China. The 50-day moving average is $139.66 and the 200-day moving average is $125.69. Earnings estimates for BIDU are $2.89 per share in 2011. The 52-week range is $76 to $165.96. Near the lows of 2009, BIDU traded for about $10 and rose to about $160, providing exceptional returns to investors.
The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long LDK, DANG, JKS.
Disclaimer: Rougemont is not a registered investment advisor and does not provide specific investment advice. This information is solely educational in nature and not intended to serve as the basis for any investment decision.