My China play: SDTH

[tokyopua]

Wow, nice volume and price action in SDTH today, 150K shares plus in the last 10 minutes 

[bourbonstreet_crawdaddy]

Another great pick by David!

Hopefully, we will see CHME.OB make a similar move soon.....

Happy New Years!

Bourbon 

[Garoh]

Going to $15

[David Randolph]

Thanks

SDTH is posing me a problem that I like to have ... you see, SDTH currently represents 13.3% of the Main Portfolio, because it more than doubled since I bought it with the usual size of 6.6%. If SDTH doubles again in 2008 (I hope so), it would then represent a 26% or so holding (if all the others remained constant - I hope not).

It wouldn't seem responsible, from a money management perspective, to have 1/4 of the portfolio in one single stock. On the other hand, if I cut my exposure to this stock, or adopt cutting exposure when a stock goes way up as a rule, then I would perhaps cut the legs to the two or three tenbaggers that I may have in the Portfolio, ending up with a lower long term performance.

For now I'm not prepared to make any hard rule, I'll continue being subjective about this issue. Whenever I feel uncomfortable due to holding a larger stake of the Main Portfolio in one single holding, I'll reduce the exposure to that holding.

This still isn't the case for SDTH ... I see $1 EPS in 2008, and I'm still not sure what the p/e should be for this stock, because, you see, SDTH is a Chinese innovator, a unique company making a unique product in the whole World, and this is rare, even more so in China (compared to the US). And the way SDTH has been growing and is about to grow ... I don't know guys, the market can just get insane and push this thing up to 50 times earnings or something like that.

My mind is opened to all possibilities and I'll just sit tight and do nothing. I'll let the market tell me how much is enough, not my personal judgment. For as long as fundamentals keep improving, the multiples can keep expanding.

I'll continue holding SDTH for the long term.

[Hungaryson]

If volatility picks up for SDTH will you ever put in a trailing sell stop?
If so, what trigger would you cause you to put the trailing sell stop in? *** PE, etc.)

Thanks

[buddjas1]

Hopefully not the reason for the rally.  Looks like good long term news, but no reason to bid the price up.

ShengdaTech Introduces NPCC for Color Ink Jet Paper

http://biz.yahoo.com/prnews/080102/cnw011.html?.v=39

[David Randolph]

If volatility picks up for SDTH will you ever put in a trailing sell stop?
If so, what trigger would you cause you to put the trailing sell stop in? *** PE, etc.)

Thanks

Before I had the chance to reply your question you've assumed that I wouldn't put any trailing stop so you've canceled the 3 Stocks Premium service, even after acknowledging that you earned 20% net profit in 2007 following the Main in a very difficult year.

Now I would call you a "trailing stop fundamentalist".

So, now that you have already canceled the service but still have access to the premium service area, I'm going to tell you a thing or two about the stock market and my experience.

- If you use trailing stops you will never, I mean never, own a 5 or 10 bagger in your entire investment career. The chances of you winning the 1st prize in lottery are probably higher than catching a 10 bagger without a 30% pullback along the way (assuming 30% would be your trailing stop). This means you will always collect small profits.

- And what about losses, are you as fast in taking a loss as you are about taking a profit, or you hold losses for the long run?

- After all the work I have in accessing the long term fundamental value of a stock, do you think it would be wise, or even prudent, to put my investment decision in the hands of a bunch of guys that just can't stand to have an outstanding and growing profit and need to quickly put it into their pockets, regardless of the fundamentals? I see the value 4 times higher over the long term, but because the FED raises rates or whatever reason, the stock falls 30% in a correction, I should let go of my analysis, and decide, not with my head and work, but with others heads and lack of comprehension for the business?

- If you read the books of the best investors ever, like Warren Buffet or Peter Lynch, for example, you'll see that they don't care about what the market thinks. They have their own ideas and follow them with conviction. That's why they were able to grow so much over the years, while others, always jumping from one stock to the next, without really knowing what they're doing or why they're doing it, never really accomplish anything.

Anyway, obviously nothing personal here, I wish you the best of luck in your investments. I will stay path with my investment philosophy, of course opened to new ideas (but not ideas that I have already concluded and experienced as wrong), regardless of how many subscribers I have in this service. Even if I stay alone here I'll continue to follow my strategy.

You take care

Going back to SDTH, indeed it may pullback, and it seems the general market is due for a further slide. But the company's long term value, given its products and fundamental trends, is way above the current value and I'll keep holding it for the long term.

No man will ever grow rich taking 1 bag of profits where there are 10 bags to take.

[David Randolph]

SDTH fell 28.5% from top to bottom over the last three days and probably that was enough to throw most "tailing stops" out of board.

SDTH holds a great promise for the sustainability of mankind on this little blue planet called Earth, because the company makes a product (nano precipitated calcium carbonate - NPCC) which is starting to be used to replace many of the natural resources needed to make common goods like tires, paper, paint, printing ink, latex, PVC, etc.

SDTH will have 190 metric tons of annual capacity in Q1 2008, as it brings online an additional 60 metric tons of capacity. Longer term plans are for annual production capacity of 1,000 metric tons.

NPCC is an awesome product/technology that lowers the cost of producing many goods needed in our everyday lives. NPCC will be in high demand whatever the global economy does.

SDTH will be a multi-billion dollar business.

Consider "trailing stops", "shorting", "charts", "technical indicators", "bear markets" and other similar stuff all you want. My 12 years of intense stock market study and experience tell me the best attitude for me to take is to keep holding this great business for the long term.

[stocky]

Applaud David. I know it's so tough to have a public portfolio and more so if there are subscribers. I have been hanging on this site since it started and I can attest that it is the best. Just people are looking short term and what they see is a sea of red. I hope they will see the sea of green soon too.

[David Randolph]

Applaud David. I know it's so tough to have a public portfolio and more so if there are subscribers. I have been hanging on this site since it started and I can attest that it is the best. Just people are looking short term and what they see is a sea of red. I hope they will see the sea of green soon too.

Thanks a lot for your support stocky Some days are tougher than others, the important thing is that we keep on going

Shengda Tech used to be called China Nanotech. I guess they changed the name of the company because the first one was somewhat speculative and it was tied to one particular market, and SDTH wants to be a global company.

I found an article dated August 15th, 2006, which explains what SDTH has been doing:

China Nanotech Opens New Factory for Nano Precipitated Calcium Carbonate

NPCC isn't new, in fact there are companies in the World making it for 25 years, like MTX, for example, which trades on the NYSE. The "new factor" in SDTH's story is the method they use for producing NPCC:

«The new factory will employ China Nanotech's proprietary breakthrough Membrane Diffusion technology developed in collaboration with Tsinghua University in China. The Membrane Diffusion process offers significant advantages over both the traditional manufacturing method for NPCC and the more advanced "Ultra-Gravity" technology. Like the "Ultra-Gravity" process, the Membrane Diffusion process significantly increases production efficiency and stabilizes the grain size of NPCC, so as to enhance product quality. However, the Membrane Diffusion technology significantly reduces production costs as compared to the high-cost Ultra-Gravity process, while also improving quality control and consistency.

"China Nanotech's new Shaanxi factory is the first industrial application of the breakthrough Membrane Diffusion method for NPCC production in the world," said Mr. Xiangzhi Chen, President, CEO and Director of China Nanotech. "By adopting this technology, we expect to realize a significant competitive advantage in the burgeoning global market for NPCC.»

SDTH's technology is patent protected:

• ShengdaTech Receives Patent Approval for Advanced NPCC Technology
PR Newswire (Mon, Dec 17)

SDTH's higher quality NPCC is taking business away from competition:

• ShengdaTech Introduces NPCC for Color Ink Jet Paper
PR Newswire (Wed, Jan 2)

«Anne Paper collaborated with ShengdaTech on the research and development of NPCC for use in its color ink jet paper in an effort to replace the higher cost, lower quality NPCC obtained from an international manufacturer.»

We can access SDTH's future value using the following simple math:

Since ...

«Total volume of NPCC sold during the third quarter of 2007 was 34,257 metric tons.»

... 34,257 metric tons of NPCC production meant $6.03 share price, then ...

«If completed, the third phase of construction at Shengda Industrial Park is expected to take production capacity to 1 million tons of NPCC per year.»

... 250,000 metric tons of NPCC of quarterly production will mean a 250,000/34,257 = 7.3*$6.03 = $44 price per share.

Of course, there are more variables to be considered, not just production capacity, but this gives us an idea of SDTH's potential if the company just keeps growing according to management's initial plan.

I'll continue holding SDTH for the long term.

[David Randolph]

Whatever the global economy does, people will still need tires, paper, paint, ink, PVC and other materials that NPCC helps doing. SDTH makes the cheapest and best NPCC in the World, using its proprietary technology, and therefore it will keep growing its market share at a fast pace, in my view.

I'm not prepared to consider selling SDTH or even reduce my exposure to this stock below $30. This stock will more than compensate for my mistakes elsewhere, but only if I continue holding it with strong hands.

[David Randolph]

It is a fact that SDTH opened at $8.54 yesterday, almost completely erasing the bull run it had.

Fundamentals clearly show this stock is worth more than $30, but hey, some people bought below $8, and they couldn't stand the risk of letting a profit turn into a loss, could they?

Personally I'm getting tired of seeing several of my holdings returning 100% and then fall back to my buying price ... this has been a persistent behavior, I feel like the market is doing all it can for me to give up on my long term approach and get back to more intuitive short term trading.

But my resolution to be a long term investor in stocks is way too strong. It's going to take a lot to shake me out of my convictions.

As far as I'm concerned, SDTH will be over $30 in two years time and I don't care about what happens to the chart between now and then. I'll just pay attention to fundamental developments, to see if the major investment story remains on track.

[n1notesguy]

Hi David,

Have you ever considered doing something in the middle between short term and long term trading? Maybe using the fundamental developments in concert with a longer term technical strategy for buys and sells?  I do not know if you have read it but in Stan Weinstein's book Secrets for Profiting in Bull and Bear Markets he defines different timetables of trading.

Just curious what your thoughts might be on this.

Ken

It is a fact that SDTH opened at $8.54 yesterday, almost completely erasing the bull run it had.

Fundamentals clearly show this stock is worth more than $30, but hey, some people bought below $8, and they couldn't stand the risk of letting a profit turn into a loss, could they?

Personally I'm getting tired of seeing several of my holdings returning 100% and then fall back to my buying price ... this has been a persistent behavior, I feel like the market is doing all it can for me to give up on my long term approach and get back to more intuitive short term trading.

But my resolution to be a long term investor in stocks is way too strong. It's going to take a lot to shake me out of my convictions.

As far as I'm concerned, SDTH will be over $30 in two years time and I don't care about what happens to the chart between now and then. I'll just pay attention to fundamental developments, to see if the major investment story remains on track.

[David Randolph]

Hi David,

Have you ever considered doing something in the middle between short term and long term trading? Maybe using the fundamental developments in concert with a longer term technical strategy for buys and sells?  I do not know if you have read it but in Stan Weinstein's book Secrets for Profiting in Bull and Bear Markets he defines different timetables of trading.

Just curious what your thoughts might be on this.

Ken

This would take the entire evening and unfortunately I'm short on time today. Generally and when it comes to stocks, I pretty much like Peter Lynch's approach which completely ignores the short term fluctuations, as painful as that can be.

But it's an open debate, we'll come back to this.

Coming back to SDTH, the company released some information a couple of days ago which is interesting:

In response to recent investor questions, ShengdaTech has provided the following:

You may think that 3% cost savings isn't much, but if you think of very large corporations it is significant. And why not cut costs 3% if everything else remains equal?

SDTH sells a product that saves money. Every company wants that.

The stock rose 41% from that $8.5 open so maybe it will need to consolidate a bit now, but longer term the stock will be worth $30 plus in my opinion.

[Se7en]

ShengdaTech Announces Upgrade Listing to Global Select
Thursday January 31, 8:00 am ET

http://biz.yahoo.com/prnews/080131/cnth012.html?.v=42


TAIAN CITY, China, Jan. 31 /Xinhua-PRNewswire-FirstCall/ -- ShengdaTech Inc. ("ShengdaTech" or "The Company") (Nasdaq: SDTH - News) a leading manufacturer of nano precipitated calcium carbonate ("NPCC") and coal-based chemical products in the People's Republic of China ("PRC"), today announced that its application to list its securities on The NASDAQ Global Select Market has been approved effective January 31, 2008.


"We are extremely proud to be approved to list our securities on the NASDAQ Global Select," commented Mr. Xiangzhi Chen, CEO of ShengdaTech. "The upgrade is a true testament to ShengdaTech's commitment to enhancing shareholder value and represents yet another milestone as we increase our presence in the international markets."

The NASDAQ Global Select Market, one of the three market tiers at NASDAQ, recognizes NASDAQ's world-class listed companies and their commitment to high standards and good governance. It is reserved for companies that meet the highest initial listing standards in the world based on financial and liquidity requirements. Prior to the upgrade, the Company's shares were listed on the NASDAQ Capital Market under the same symbol.