How Three Small to Mid-Cap Chinese Tech Stocks Outperformed Three Large Cap Chinese Tech Giants?

If you were able to flip a switch & go back a year ago today you know what you would have?  A lot of big questions marks & some major unknowns about what to expect from Stocks on Wall Street most recent investment advice. On April 30th, 2012 to a lot of people’s surprise, Stocks on Wall Street published an article titled:

Three Small to Mid-Cap Chinese Tech Stocks Worth Watching!

Screen Shot 2013-04-30 at 3.49.43 AMThe title is rather self-explanatory but just to make sure it’s clear to everyone we recommended our readers to invest in three relatively unknown, highly speculative small to mid cap Chinese tech stocks.

When we originally made these picks it was an interesting time to be involved in the technology sector.  Mark Zuckenburg has just taken Facebook public and thanks to the IPO heard around the world, many analysts and investors alike focused their full attention on Facebook’s IPO not recognizing that there was plenty of better investment opportunities out there, they just needed to be found. At the time, analysts were raving about America’s growing tech boom and all the different strong technology giants we had in the U.S. The thing was, many of these U.S. tech giants had done nothing to prove themselves and really it was the media blowing everything out of proportion most infamously the whole Facebook IPO and it’s 24/7 news coverage. When you looked at the facts, it was really China with the upper hand and the one in the driver seat. With a population of over 1.4 billion and a booming tech industry it was really China who had emerged as the true player in the tech world holding many of the top up and coming tech stocks. At the time our favorite Chinese tech stock was Tencent Holdings who is the equivalent of Facebook to China. All you need to do is put both Tencent Holdings (0700.HK) and Facebook’s (FB) charts next to each other to see which company was leading the way. At the time, we had already been current Tencent shareholders leading even more to our reasoning of finding a completely new investment route than we are use to.

Screen Shot 2013-04-30 at 3.49.07 AMInstead of choosing to invest in what many considered to be China’s three can’t miss, large-cap tech stocks. They are as follows, Baidu (NASDAQ: BIDU), China Mobile (NYSE: CHL), & Sina Corporation (NASDAQ: SINA). We on the other hand decided to take the road less traveled and in this case steep.

Collectively we decided we would target three small to mid-cap Chinese tech stocks. The highly speculative nature of the picks was something that intrigued us quite a bit. While these stocks were relatively unknown to the average investor they weren’t to us. Like when making all our investment decisions, we made sure we new the inside and outs of all three picks and while they had some relatively high risks to them we believe the potential gains made them worth the risk. As a result, we invested in the following three Chinese tech stocks and for those of you who have read our original article you would know that we did outline the speculative nature of these picks just so our readers new that they weren’t your typical, conservative investment opportunity. The three stocks we invested in were the following:

  1. RDA Microelectronics (NASDAQ: RDA)
  2. Spreadtrum Communications (NASDAQ: SPRD)
  3. Vimicro International (NASDAQ: VIMC)

Screen Shot 2013-04-30 at 3.49.20 AMLet a year quickly fly by & that’s how you get to where we are today. Did we make the right decision? Should we have gone with the Chinese Large Cap Options Instead?

Hands down we had made the right decision & no we were lucky we avoided investing in any of the Large Cap Chinese Stock Picks. Instead going the route of our three speculative Chinese tech plays ended up being the right call.  You can overlook these things in every possible nature but overall our decision paid off big-time especially when you factor in how our three Large Cap counterparts performed during that same time period.

If we had gone with our large cap tech strategy we would have held positions in the following:

  1. Baidu (NASDAQ: BIDU)
  2. China Mobile (NYSE: CHL)
  3. Sina Corporation (NASDAQ: SINA)

Over the past year, all three stocks performed well below their expectations producing negative overall yields across the board.

  1. Baidu (NASDAQ: BIDU) -36%
  2. China Mobile (NYSE: CHL) -2%
  3. Sina Corporation (NASDAQ: SINA) -6%

Screen Shot 2013-04-30 at 3.49.29 AMTogether the three stocks resulted in a total loss of -44%. If you average that out over the three different picks you’d get -14.66% each.

How happy do you think our readers would have been if all we had to show them was a total net loss of -44%? Not happy one bit, we can tell you that.

Luckily, we chose the alternative route & as a result we believe our readers will be extremely pleased with our overall performance. Over the past year, all three stocks have taken virtually a different route than planned but the good part is RDA was the only pick that failed to produce any substantial gains. That’s right, RDA really struggled last year & heading into 2013 with the overall share price falling -28%. The good news is that SPRD decided to have an exceptional year grossing +57%, which will put us comfortably back in the lead. Finally, last but not least we have VIMC who performed steady & strong all year long grossing a total of +17%.

1.     RDA Microelectronics (NASDAQ: RDA) -28%

2.     Spreadtrum Communications (NASDAQ: SPRD) +57%

3.     Vimicro International (NASDAQ: VIMC) +17%

Screen Shot 2013-04-30 at 3.55.02 AMTogether the three stocks resulted in a total gain of +46%. If you average that out over the three picks you’d get +15.33% each.

As you can see, it was quite a different tale of the two story lines.

A large part of our success comes directly thanks to the exceptional year that SPRD had appreciating over +57%.

You can’t let VIMC’s performance & achievements go unrecognized, as +17% is still a great one-year yield.

As for RDA, there’s not much we can say other than it just wasn’t their year. If anything, they were lucky they got to team up with such a dynamic duo as RDA’s -28% would them only behind BIDU as the worst pick of the group.

Not quite done just yet, there is one last thing we’d still like to analyze. Lets see how our 12-month price targets matched up with each picks actual total net gains.

To start we have VIMC who we originally bought at $1.28 per share. While VIMC had a solid year appreciating +17%, it didn’t come close to our 12-month price target as we set the bar ridiculously high with a price of $2 per share. This would have resulted in a total yield of 56%. C’mon now they’re not SPRD lol!

Screen Shot 2013-04-30 at 3.57.03 AMAs for SPRD, they were another pick where we set the bar ridiculously high. We bought our original shares at $13.80 so issuing them a 12-month price target of $21 per share is a tough feat as that’s a total yield of 52%. We sure hope you all remember just how great SPRD performed & the yield they brought in this year as even though we set the bar high, they still beat it by a cool +5%.

Last but not least we have RDA holding up the bottom at -28%. When we first invested in RDA it was trading at $12.87. Originally we had anticipated RDA would at least be trading in the positive territory throughout 2012 & 2013 so we set a modest 12-month price target of $14.50 resulting in a total yield of 12.66%. Sadly even with the modest expectations it just wasn’t RDA’s year at all, lets just hope they come back next year stronger than ever.

To some people the RDA pick will bother them as they have a tough time accepting defeat especially if that was your decision making that let to the defeat. But since all three picks were made collectively together it’s in our best interest to put RDA behind us & focus in on the all the good things that came of today. It’s all about looking at the big picture & seeing that there is nothing worth complaining about as in fact we should be quite satisfied with ourselves & equally impressed as producing a total net yield of +46% is a great achievement. It stands even more impressive when you factor in just how bad the Chinese large cap tech stocks performed. If there is one thing you can still easily see is that our economy is still struggling worldwide & that we are still a ways away from times of economic prosperity. These aren’t your fathers boom years where whatever you put your money into in the markets it just went up. You try that kind of strategy now a days & you’ll be quickly asking where’d your money go. It clearly takes a strategic investment mind & someone with in-depth knowledge about the markets & what they’re doing to produce consistent gains trade after trade.

Screen Shot 2013-04-30 at 3.56.47 AMA comparison we always like to make is to see how both the NASDAQ & Dow Jones Industrial Average have been performing during the same time period. Over the past year it was actually the NASDAQ who slightly edged out the Dow Jones appreciating +14% compared to +12.15%. That’s where I like to factor in our average yield per pick which was +15.33% & you can see that even with RDA’s struggles we were able to beat the markets & that we made the right overall decision in investing our money. Now the next question is where to next?

Everyone make sure to tune in later this week for more in-depth analysis on all three of our picks. Stocks on Wall Street will be reassessing our overall position on each of them, offering new analysis & guidance going forward, we will be again handing out our 12-month price targets along with offering our final overall decision on whether we are going to hold onto any of the three stock picks or whether we decide to take our gains & relocate somewhere else to find the next great investment opportunity.

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