Josh Stern

Comparing Valuations in China and the U.S.

I use screens as an initial method to find companies with little or no doubt, lots of cash, and trading at multiples of 1x-4x cashflow and 0-1.5x revenue. A very large portion of the companies fitting the description these days are microcap China based ADRs. It's very common over the last month for these companies that are already down 50-90% to report strong earnings and a decent outlook and then turn around and go down some more the next day. The "reason" for that? It's a bear market...almost by definition everyone is skeptical of everything they can imagine to be skeptical about, and then some. And the investors who are not inclined to be so skeptical are out of cash or facing redemptions. Baskets of these stocks will be outstanding long term investments, but the timing of how long that will take is anyone's guess at this point.