Legendary fund managers or gurus such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, are well-known for their savvy in picking winning stocks year after year. Generally, their investment horizon and holding periods stretches into many quarters and years, sometimes even decades. In this article, we examine based on our research of their latest available Q3 institutional 13-F filings the China-based companies (ex-solar group) that they are most bullish and bearish about; their investing activities in China-based solar companies will be investigated in a separate article that will focus on just solar stocks.
Most of the information is based on the latest available Q3 filings, but we have updated our data with Q4 filings from guru fund manager Yacktman Asset Management that filed earlier this month. Taken together, these guru managers were bullish on the China group (ex-solar), adding a net $474 million in Q3 to their $3.18 billion prior quarter holdings in the group.
The following are the Chinese companies (ex-solar) that guru fund managers are bullish about, that are also trading at a discount to their peers (see Table):
Baidu Inc. (BIDU): Often touted as the Google (GOOG) of China, BIDU is a leading Chinese provider of internet search, targeted online advertising and other internet content services. Guru funds added a net $114 million to their $1.33 billion prior quarter position, and together they hold 3.0% of the outstanding shares, well above their 1.8% weighting in the group. The top buyers were Tiger Global Management ($112 million) and Viking Global Investors ($110 million). We too are firm believers in the long-term value of BIDU, and recommended buying BIDU in our coverage of Chinese equities on October 3rd when it traded at $105, identifying it as the best opportunity among Chinese equities; it is now up 30% from that price after rising as high as 40% during the month after our recommendation. BIDU is scheduled to report its Q4 on Thursday after the market closes; the stock currently trades at a current 52-53 P/E on a TTM basis, and at 22.7 P/B, compared to averages of 18.6 and 2.1 for its peers in the internet services group. However, its valuation is cheap relative to its growth given that year-over-year earnings growth has averaged between 85%-100% for the past few quarters compared to growth rates in the high teens to low 20's for many of its peers in the group.
Netease Inc. (NTES): NTES is a Chinese provider of an interactive online gaming community, internet portal and wireless value-added services. Guru funds added a net $86 million to their $253 million prior quarter position, and taken together guru funds hold 5.4% of the outstanding shares, more than their 1.8% weighting in the group. The top buyers were Lone Pine Capital ($71 million) and Columbia Wagner Asset Management ($29 million), and the top guru holder was Lone Pine Capital ($309 million). NTES trades at a current 13.5 P/E on a TTM basis, and at 3.2 P/B, compared to averages of 27.3 and 1.7 for its peers in the internet content group.
Focus Media Holdings Ltd. (FMCN): FMCN operates the largest out-of-the-home digital advertising network in China through 131,006 flat-panel and 324,364 poster frame displays. Guru funds added a net $4 million to their $18 million prior quarter position, with the top holders being Driehaus Capital Management ($9 million) and Soros Fund Management ($6 million). FMCN shares have been under pressure due to continuing negative research reports from Muddy Waters about its business operations; the company has taken these allegations head-on and addressed them, however the allegations at a minimum have contributed to increased volatility and kept a lid on the stock price. FMCN shares currently trade at a discount 11-12 forward P/E and 2.4 P/B compared to averages of 21.4 and 1.8 for its peers in the advertising and marketing group.
Spreadtrum Communications Inc. (SPRD): SPRD is a Chinese fabless designer of baseband processor and RF transceiver solutions for wireless communications market. Guru funds added a net $11 million to their $6 million prior quarter position, with the top buyer being Kingdon Capital Management ($15 million). SPRD shares have been hammered lately despite reporting impressing quarter results, beating analyst earnings estimates by 4c-7c every quarter for the last four reports, over concerns about its long-term competitive position. Its shares currently trade at a discount 6-7 current P/E on a TTM basis, and at 2.9 P/B, compared to the averages of 13.2 and 1.6 for its peers in the electronic components semiconductor group, while earnings are projected to grow modestly from $2.56 in 2011 to $2.64 in 2012.
The following are China companies (ex-solar) that guru funds are bullish about, but that are not trading at discounts compared to their peers (see Table):
- Sina Corp. (SINA), a Chinese internet portal offering media content and services for China and global Chinese communities, in which guru funds added $199 million to their $111 million prior quarter position;
- Youku.com Inc. (YOKU), China's largest video-streaming company, also more popularly known as the YouTube of China, that offers mostly professionally-generated content licensed from movie studios and TV companies, in which guru funds added $90 million to their $270 million prior quarter position;
- E-commerce China Dangdang (DANG), a Chinese online retailer offering books and other media, personal care and general merchandise via Dangdang.com, also often called the Amazon (AMZN) of China, in which guru funds added a new $42 million position; and
- Renren Inc. (RENN), often called the Facebook of China, a Chinese operator of a social networking platform that enables users to communicate and share information via Renren.com, in which guru funds added a net $5 million to their $18 million prior quarter position.
The following are the China companies (ex-solar) that guru fund managers are most bearish about (see Table):
- Vanceinfo Tech ADS (VIT), a Chinese provider of outsourced software research and development, maintenance, testing and IT services, in which guru funds cut a net $9 million from their $161 million prior quarter position; and
- Sohu.com Inc. (SOHU), the third largest internet portal and a leading brand in China, in which guru funds cut a net $4 million from their $14 million prior quarter position.
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.