In an article that I wrote on May 4, I urged my readers to sell all of their stock holdings because numerous economic statistics indicated at that time that economic growth in the United States and several other regions of the world would slow considerably during the remainder of this year and that stock prices in general would therefore pull back during the ensuing weeks.
Since then, the S&P 500 Index has fallen 5.6 percent and the Nasdaq Composite Index has declined 6.7 percent. During that same period, stocks of small Chinese companies fell sharply even though the fundamental outlook for many of those companies appears to be very favorable. Two such companies are Renren (RENN)
and Jiayuan.com International (DATE)
Renren, which means “everyone” in Chinese, is China’s version of Facebook. The company operates the leading Internet-based social networking platform in China, as measured by the total number of web pages viewed and the total amount of time that Chinese Internet users spend on social networking sites.
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- Renren.com, the company’s main social networking site.
- Game.renren.com, an online games center.
- Nuomi.com, a social commerce website.
- Jingwei.com, a professional and business-oriented social networking site.
During the year ended Dec. 31, 2011, Renren increased its net revenues to $76.5 million from $13.8 million at the end of 2008, a 454 percent increase over the past two years. During that same period, the company’s income from operating activities rose to 3 cents per diluted share from a loss of 1 cent and 3 cents during the years ended Dec. 31, 2008 and 2009, respectively.
After declining 46 percent from May 4 to June 13, Renren rebounded a bit this morning (June 14).
China already has the largest Internet-user and mobile-user populations in the world. Industry analysts forecast those user populations to grow at very fast rates during the next few years. My experience suggests that Renren’s stock has the potential to appreciate exponentially during the next few years.
A rising tide of users
Jiayuan.com (DATE) is another stock that appears to offer the potential for substantial gains over the next few years. After going public on May 10 at an initial offering price of $11, DATE declined 10.3 percent through yesterday’s close. However, the stock started today on a positive note.
Jiayuan.com operates the largest online dating platform in China, controlling a 43.7 percent share in the total amount of money spent in China's online dating market during 2010. According to Internet market research firm iResearch, Jiayuan.com also ranked No. 1 in terms of number of unique visitors, average time spent per user, and average pageviews per user among all online dating websites in China during 2010.
In addition to its online dating services, Jiayuan.com hosts offline VIP events for affluent clientele.
Like Renren, Jiayuan.com increased its revenues at a very fast pace during the past two years, growing those revenues to $167.6 million during the year ended Dec. 31, 2010 from $27.6 million during 2008. Meanwhile, the company generated a profit during each of the past two years, with its net income rising to $2.5 million during the year ended Dec. 31, 2010 from $830,000 during the prior year.
As my research indicates that the recent downturn in stocks of small Chinese companies is nearing an end, both RENN and DATE appear to be worth considering for speculative portfolios.
About the Author: David Frazier
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