Buy Nam Tai Electronics, Inc. (NTE)   4 comments

I have been reading a lot about Nam Tai Electronics, Inc. (NTE) this morning. The following Seeking Alpha article sums up what seems to be the general consensus on it: “Nam Tai: A $7 Play On Apple And China With An Analyst Price Target Of $20“.

My general view on Chinese stocks is to avoid them, unless they are under a huge spotlight, like Baidu (BIDU). A lot of investors seem to have their eyes on Nam Tai, which has a lot of value on their financials, with book value/share at $7.90 and cash/share at $5.27. A lot of that is coming from a surprising amount of real estate this company owns in China’s Shenzen region (next to Hong Kong). Valuing Chinese real estate is about as risky as buying a Bernie Madoff investment, so there is plenty of potential downside to this valuation. The fact that Nam Tai is planning to develop some of this land into office space isn’t necessarily a good or bad thing, since the results could go either way.

In addition, Nam Tai is an Apple supplier. That’s a positive from the “Chinese company under a spotlight” perspective. Of course, this also explains the company’s tight margins. However, with Apple’s recent China Mobile deal, this could also be to Nam Tai’s benefit.

In summary, Nam Tai is a company with a lot of potential upside AND potential downside. But the fact they have a bit of diversified upside and downside, I think the stock is worth a small position in my IRA, so I plan to add some today. I will post the sale here.

UPDATE: I added NTE at $7.31.

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Posted January 8, 2014 by edmcgon in Portfolio Moves, Stocks, Technology

4 responses to “Buy Nam Tai Electronics, Inc. (NTE)

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  1. Hi Ed, what would be you annual net income growth assumption on NTE? Thanks.

    • The only analyst covering the stock puts the EPS growth at 12.5%/year for the next 5 years. That sounds about right for the net income, and might even be on the conservative side. A lot of factors could influence that to the upside or downside.

  2. Ed – I gotta say this choice surprises me as you have pretty constantly been anti these smaller Chinese stocks for what are legitimate concerns. NTE scores very high on my stock screener list and I have looked at it several times. But I can not get comfortable with the financials, so I have taken a pass. Good luck to you, it is promising in my eye that recent lawsuit was dismissed.

    • Marshall, if anything, the financials look a little too good. The few negatives on them, such as the tight margins and the drop in quarterly yoy earnings actually make me feel a little better about it. I used to play the Chinese small caps before they went out of favor, and some of those stocks had the best-looking financials you ever saw (for good reason, since they were lying through their teeth about them!).

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