If you invested in Apple (AAPL), Priceline (PCLN), Amazon.com (AMZN), Chipotle (CMG), or Baidu (BIDU), even just a couple years ago, you have seen truly exceptional gains. These companies were positioned to capture a massive amount of growth due an upward trend for their products and services. The best time to buy those stocks was when shorts had piled into the stocks and when the prospects for those companies looked less positive. There were times in the past several years when it was possible to buy many of these stocks in the single digits.
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 stock to rise 500% or more. After a big decline in the markets many investors have given up on trying to find stocks with huge potential and focused on trying to get their losses back. This is the perfect environment to pick up some very high potential growth stocks.
Remember the washout in Internet stocks after 2001? The crash in some of the Chinese Internet stocks have reached valuations that are similar to where investors made great gains when they bought cash rich, high growth potential tech stocks after the Dot com bubble burst. Just as few investors were excited about buying Priceline, Apple, or Amazon when they were trading at the lows and in the single digits, few are interested in investing in these stocks now. It's always hard to buy a stock that only seems to go lower especially when most investors have lost money in the stock and have given up, but it can be the best time to buy. When you invest in companies that have a business model that puts them right in front of a major growth trend, there is a very strong chance of major gains over time. Some of these stocks have fallen so much that they would be close to seeing 500% gains if they only went back to the 52 week highs. Here is a look at a handful of companies that share some similarities exhibited by Priceline, Baidu, and others just before those stocks made explosive moves higher:
E-Commerce China Dangdang (DANG) shares are trading around $5.47. 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 $8.43. DANG shares have been cut in half since the market started to correct in early August, but the potential of this company is still just as strong.
Why DANG shares could rise 500% or more in the next few years: 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 one of the most popular sites in China, and could continue to climb over the years. See the website rankings here. DANG has a current market cap of about $433 million and a enterprise value of about $188 million due to the cash on the balance sheet of roughly $257 million. An enterprise value of only $188 million for a Internet company, with one of the most popular websites, in a country like China is way too cheap. The cash on the balance sheet of about $257 million is equivalent to around $3.25 per share, so the stock is trading just a couple bucks over cash value. See the balance sheet data here. Amazon.com has a market capitalization around $101 billion and is one of the largest Internet retailers in the USA. If DANG becomes one of the largest retailers in China, surely it's worth far more than the current enterprise value of only about $188 million, especially when you consider that is about 1/500th of Amazon's market cap. Also, it is very possible DANG could see a strategic investment from a major company or even be a takeover target. The retail Internet space in China is going to be one of the fastest growth areas in the world going forward, and I can't imagine that executives at companies like Baidu or Amazon.com haven't discussed the possibility of a strategic investment or buyout of DANG.
Renren, Inc. (RENN) is trading at $5.59. Renren is a social networking company in China. Many call it the "Facebook" of China. The 52 week high is $24. These shares have dropped from recent highs of around $14 to current levels. One analyst just set an $11 price target and estimates "Renren will make 8 cents this year on sales of $125 million, rising to 16 cents next year on $200 million." You can read that here. This stock should see a boost when Facebook goes public.
Why RENN shares could rise 500% or more in the next few years: RENN has a market capitalization of about $2.2 billion and a enterprise value of about $868 million due to the cash on the balance sheet of roughly $1.2 billion. The cash on the balance sheet of about $1.2 billion is equivalent to around $3.14 per share, so the stock is trading just a couple bucks over cash value. See the balance sheet data here. Reports have put the value of Facebook at around $75 to $100 billion, and that makes buying RENN with a enterprise value of about $788 million a real bargain. The largest social networking site in China (the most populous nation in the world) has to be worth more than 1% of Facebook. I was investing in Baidu when it was under $10 per share and many investors doubted it could compete with Google (GOOG) but it has and one lesson learned was that Chinese people would rather do business with a Chinese company like Baidu. I think we will see the same whereby Chinese consumers will be more likely shop with DANG or use a social networking website like Renren rather than Facebook or another American company. RENN just announced a deal to buy a video site for about $80 million in cash. The deal shows RENN has plenty of cash to make growth boosting acquisitions. See more on that deal here.
Yoku.com Inc., (YOKU) is trading at $20. Some call this company the "Netflix" of China. The 52 week range is $13.76 to $69.95. The 50-day moving average is $25.56 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.
Why YOKU shares could rise 500% or more in the next few years: YOKU has a market capitalization of about $2.3 billion and a enterprise value of about $1.52 billion due to the cash on the balance sheet of roughly $631 million. The cash on the balance sheet is equivalent to around $5.55 per share. See the balance sheet data here. The market for video streaming in China is massive and this stock has huge potential in the coming years.
Baidu shares are trading around $127.72. Baidu is a leading Internet search site in China. The 50-day moving average is $143.39 and the 200-day moving average is $130.31. Earnings estimates for BIDU are $2.91 per share in 2011. The 52 week range is $94.33 to $165.96. Near the lows of 2009, BIDU traded for about $10 and rose to about $160, providing exceptional returns to investors. Baidu has a richly valued stock that should be used to make acquisitions. The companies above could be smart acquisition or strategic investment targets for Baidu.
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. 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.