Out Fox The $treet

After a strong 2009 and 2010, 2011 was a year to forget for this portfolio. The market hit highs around the end of April and this model was soaring to new heights at the time. Many of the holdings had valuations nowhere near the 2007/08 peaks or even close to what would normally be considered rich. Regardless, leverage was reduced since some gains were significant. Then, unfortunately most of the stocks collapsed and even in a few cases approached 2009 lows. With too much leverage left, the model was hit very hard. The good news is that valuations started the year as attractive as during the financial collapse of 2009. 2012 Outlook Portfolio Construction The portfolio remains overweight on the global growth theme. Most of the stocks in this sector trade as if emerging markets are headed towards a recession instead of continued growth. The biggest challenge to our investment strategy in 2011 was the major inflation fears in emerging markets like China, India, and Brazil. As 201...

The buyout of Puda Coal (PUDA) is becoming increasingly likely considering the Chairman of the Board submitted a draft merger agreement last week. Though slightly delayed from the expectations of a submission in June, it still backs up his intent to follow through with the proposal from April 29. The delay also isn't too surprising considering the ongoing investigation into his supposed illegal transfers of company assets. Naturally the details of the merger agreement are more important than just the submission. No guarantee exists that the terms are agreeable. Or whether the price matches the desires of at least some shareholders that think $12 is too low. Will the special committee and BOD be able to negotiate a higher price? It would seem a difficult pill for most shareholders to swallow if Ming Zhao was able to cause the fear and parlay that into a cheap buyout. Also notable, PUDA submitted plans to regain compliance with NYSE listing standards. Though this might not be th...

The Opportunistic Levered (Arbitrage on Covestor.com) model had another rough month. The model was again hit by fraud concerns among Chinese companies and emerging markets stocks fell due to concerns over inflation pulling down growth. Over the 29 months of tracking this model, it has had numerous months of 10% plus swings. Unfortunately some cases were to the downside. In those cases the stock holdings just got more attractive in the process. Even with China fraud scares, the three stocks owned in this model still appear to be worth more than our original purchase prices not to mention multiples of that. The size of declines in some of the stocks in this model caught us off guard. It didn't surprise us that June was weak, but the level of weakness in several sectors such as industrials and emerging markets such as China caught us off guard. Bottom Performers The bottom performers were again lead by the China stocks in the model. ChinaCache International (CCIH) and Lihua Int...

Interesting to see a hedge fund manager actually bullish on Reverse Takeover (RTO) China stocks. Peter Siris is a partner at Guerilla Capital Management and has been an investor in China stocks for a long time. What gives him street creed in the current environment is that he has been short several China stocks including Longtop Financial (LFT ) that recently blew up. He didn't talk about Puda Coal (PUDA) in this interview, but he is an investors in the stock so he has done some due diligence on the company and likely visited them. PUDA should be announcing some news shortly on the $12 buyout offer from the Chairman. PUDA was a big investment in our Opportunistic portfolios so we're hopeful that Peter is correct. The $12 buyout would be much better than nothing, but we're still looking for a higher price. After a very one sided market, its nice to see somebody like Peter on CNBC's Strategy Session backing up my theory that the surviving China stocks will trade up. ...

Joy Global (JOYG) reported analyst beating quarterly numbers prior to the market open this morning. JOYG is the worldwide leader in high-productivity mining solutions. There report is very useful in gleaning insights into the worldwide mining sector and specifically coal and copper. Throughout the earnings report, JOYG talks about record demand for equipment and commodities and a limited supply whether due to lower ore grades or delayed mine expansions from the financial crisis. Regardless of the reasons, it appears that mining companies are finally moving forward with plans helping JOYG reach records in bookings and shipments. Considering that our models are big investors in coal and copper stocks, its always interesting to see their outlook on those markets. They see limited excess mining capacity today and hence see strong fundamentals even in a slower economic growth environment. Also interesting is not only the data on China restocking, but the increased coal demand expected...

Yesterday, King Stone Energy Group (Hong Kong listed) released a statement that its Chairman, Mr. Wang Da Yong, had increased his holdings in the company through the purchase of 2.5 billion shares from the major shareholder Mr. Zhao Ming. Mr. Zhao Ming just happens to be the Chairman of Puda Coal (PUDA) that supposedly engaged in a illegal transfer of PUDA assets to himself and since has offered to buy the company at $12. This deal raises about $55M and backs the believe all along that PUDA shareholders would make out ok considering Zhao Ming has a considerable amount of money to make shareholders whole or to complete a buyout at attractive prices. It seems very unlikely that he would sell part of his stake in King Stone Energy unless PUDA is moving towards a deal. Though we personally believe that PUDA is worth a lot more then even a sweetened bid to the $15 range, it might just be easier for all involved to take a decent offer and move on. The BOD is in a sticky situation con...

Puda Coal (PUDA) is a coal mine consolidator and met coal washer in China that has been hit by fraud allegations from a noted short seller. At question is whether the Chairman of PUDA illegally transferred shares from a subsidiary 90% owned by PUDA to himself, then sold 49% of the shares to CITIC (China govt fund) and further pledged the other 51% for a massive loan that could threaten to bankrupt the company. With all of the recent news regarding fraud amongst China Reverse Mergers, the stock plummeted 50% within a week .  The company issued a press release prior to the stock opening on the 11th that the allegations might have some validity and announced they were launching an investigation. The stock was halted on the 11th and has yet to reopen. Also the margin requirements were raised to 100% which means the stock can no longer be margined. Although the Opportunistic Arbitrage model heavily relies on margin, the model hasn't been impacted with this increased requirement since t...

Don't look now, but the China markets have been heating up the last 40 days. After a significant selloff following the highs back you November, the market had completely left China for the dead. That was clearly the wrong move. Lately it appears that China has been able to slow down its economy with PMI reporting the lowest total in the last 6 months over night. The Shanghai Composite is on the verge of  a significant breakout if 2,950 can be broken soon. A run back at the 3,150 high made back in November is the likely target. So while financial professionals are overly focused on the US markets and the Middle East, the lack of focus on the economy that leads the world these days has taken off. In that regard, our investments in China commodity plays like Puda Coal (PUDA) and Lihua International (LIWA) should perform well. Also, the recent purchase of ChinaCache (CCIH) appears ultimately timely a few weeks back. At the time CCIH was trading in very oversold levels, since the ...

Anybody following this blog knows that Puda Coal (PUDA) has been one of our favorite stocks. PUDA was a small cap Chinese coal washing company trading at 4x estimates when we originally bought the stock. They are in the process of becoming a coal mine consolidator with numerous deals in the works. These consolidation deals provide huge upside for the stock, Read previous posts for more details on PUDA. Today the stock has hit a high of $15.42 up some 9% easily hitting a new 52 week high and highs not seen in over 3 years. Why? Hard to tell why PUDA has chosen to take wings over the last month while the Chinese markets have swoon. Clearly it trades more based on US investor sentiment then Chinese market action. The likely reason for the lift off is further awareness by the US media. Lately they've been included in reports by Investor's Business Daily, TheSteet.com, and Indie Research. Until recently PUDA flew under the radar rarely getting mention by such publications. Its p...

Typically I don't post videos of companies that are mentioned on TV, but its rare to see somebody talking about one of the small caps that we own. Puda Coal (PUDA) is a leading coal mine consolidator in China and met coal washer. Last night on CNBC Aisa, the CEO of Pacific Sun Investment Management did a great job of discussing the bright future of PUDA. As he mentions, PUDA remains a very cheap stock even  with the huge run the last month. PUDA is a top pick in both the Growth and Opportunistic portfolios. Earnings will be on Friday and we're looking forward to hearing about the mine consolidation process. Disclosure: Long PUDA

After a few weeks of looking like the China market might just roll over and signal a move down in the market, the Shanghai Index jumped solid back into positive technical levels. Copper and oil have broken out as well so it appears that October is set up for some gains in the stock market as well. The two smallcap China stocks we own, Puda Coal (PUDA) and Lihua International (LIWA) also appear to be getting a bid. Makes us more encouraged to look at a China IPO tomorrow. More on that as the story develops.

This morning Puda Coal (PUDA) reported a whopping 50% beat on its Q2 earnings. PUDA reported .36 while the street expected only .24. PUDA is a coal mine consolidator and producer of clean metallurgical coal in China. Being an uplisted Chinese stock it is still very untrusted and under followed. They reported $82M in revenue for the quarter so its not a small operation. Not to mention that the consolidation of 12 mines over the next year or so should add significantly to revenues creating a decent sized coal miner. Everybody currently wants operations in Australia so why not go directly to the source and buy assets directly in China? The stock trades at a significant discount to its prospects and risks currently trading at just 4x the estimated 2011 earnings of $2.17. Considering how easily they just beat the Q2 numbers those could turn out to be very conservative. The market continues to doubt these Chinese stocks but at some point they won't be able to doubt their prospects. Highl...

It seems some of the developed markets still haven't figured out that China and the emerging markets rule the world now. The US was down Friday and Japan is weak tonight based on a weak Q2 GDP report. But does it matter when China was up nicely on Friday and is up another 1.3% today? Anybody looking at the wrong markets is likely to underperform the remaining months of this year. The stock markets in China have turned around in a dramatic fashion yet the US market remains weak. We're heavily invested in China based plays such as local stocks like Puda Coal (PUDA) and Lihua International (LIWA). Both companies trade at lower PEs then the growth rate of China. How is that possible? You'd think a fast growing China stock would trade at 15, 20, or even 30x earnings. Well, you'd think so but I guess every small cap China play is a fraud, but any India company brought public by the large US investment banks is considered safe. See the MakeMyTrip.com (MMYT) IPO last week. Comp...

Finally some news from Puda Coal (PUDA), Chinese coal consolidator, on funding for them to acquire and consolidate 6 more mines in China under Phase II of the Pinglu Project. Being that PUDA has a market cap of roughly $200M, a lot of uncertainty hung over the stock due to the expected $150M needed to acquire these 6 mines and then upgrade them. Not to mention another 4 mine project in the works as well. That's a lot of dilution feared by the market unless they found a partner so it's likely held the stock price down. Now PUDA has come to an agreement whereby the Chairman and an outside party will contribute 60% of the funds allowing PUDA to keep 40%. Considering the profitability it would've been ideal to see some type of government loan for a % of the deal, but PUDA is still obtaining these mines at very accretive levels. Not sure yet what this deal does to the targets for over $2 in EPS next year, but it shouldn't hurt. Details on the 6 mines provided back in March:...

Even in the face of a 40% mining tax, China is still busy investing in Australia . That seems rather remarkable as any company or country with time on its hand would rather skip or defer any investments in Australia at this point. Maybe they have some inside knowledge that the proposed 40% tax will be greatly reduced, but this type of move only gives the government of Australia more ammunition to implement the tax. To us this signals how ferocious the demand for mineral assets is in China. How its not about to end any time soon. And how any assets outside of Australia at the moment are very attractive because of the tax issue. Notice how they seem desperate for iron ore mines that will supply the steel industry. This leads us back to investments in scrap steel recycler China Armco (CNAM) and met coal producer Puda Coal (PUDA). Both are Chinese companies recently up listed in the US that will benefit significantly from continuing strong steel demand in China. CNAM just opened up a recyc...

Brean Murray came out with a Buy rating on Puda Coal (PUDA) today with a $17 target. PUDA was trading sub $10 yesterday and is currently up 12% today with a new 52 week high. Since PUDA was an uplisted China stock, its greatly lacked in visibility even though its in the process of consolidating 12 coal mines that are in high demand in China. This coverage should go a long way in providing visibility and credibility to PUDA. The stock has huge upside since the first 2 mines won't be consolidated until May. Even with that, PUDA expects to earn $1.10 to $1.50 in 2010 based off a profitable coal washing business plus a partial year of these 2 thermal mines. Lots of upside from the other 6 thermal mines and especially the 4 new coking coal mines they just got approval to consolidate. Read more about PUDA from a post we wrote on March 15th - Puda Coal Cools Off But Will Heat Up Again .

China is the largest user of coal and now they've become a major net importer in the last few years. Although China has embarked on several programs to focus on renewable energy sources such as solar and wind they will rely on coal fired electricity for a long time with some sources estimating that China will nearly double coal use by 2030. The coal industry in China is very fragmented. Many of the coal mines have been operated by small companies leading to very inefficient mines and a high injury rate with several tragic mine accidents. Hence, the government has embarked on a mine consolidation plan in order to move the majority of the mines into the hands of larger operators that will be more efficient and easier to regulate. The program will reduce the number of mine operators from 1,000 to 100 while also significantly shrinking the total number of mines. Mine Consolidator Puda Coal (PUDA) is one of the selected mine consolidators. It's virtually unknown by investors as they...

Amazing report if its true. Looks like Japan is having to pay up get assets such as coking coal used to make steel away from the grips of China. Alpha Natural Resources (ANR) is likely our best play with their decent supply of coking coal. Puda Coal (PUDA) is a great speculative play in China. More to come on that stock. This is the difference between coal and natural gas. China needs coal. China doesn't need natural gas. JFE Holdings Inc. reportedly agreed to pay $200 per ton for coking coal in a three-month deal with Australian coal miner BHP Billiton Ltd. The amount was higher than expected, said William Burns, an analyst with Johnson Rice & Co. Burns, who expected JFE and other companies to pay only about $150 per ton, said this shows how aggressive countries have become in competing with China for natural resources. "China has become a black hole, and the Japanese steel makers are trying to lock up their supply," Burns said.

Bought less then a 1% position in Puda Coal (PUDA) in the Growth Portfolio. PUDA is a Chinese company and a play on the ever expanding demand for coal in China. It's also a play on the coal consolidation project going on in China where they are in the process of taking over 8 mines and expanding the output. Will likely add more shares if the stock holds at support. A full write up on this investment to follow later this week.