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Feeding China

09/29/2006 12:00 am EST


Keith Fitz-Gerald

Chief Investment Strategist, The Money Map Report

With an eye toward the Orient, Keith Fitz-Gerald discovers a company that is not only on the cutting-edge of environmentally friendly farming, but also offers investors unusual financial transparency and government backing when investing in China...


“Bodisen Biotech Inc. (BBC ASE) develops and manufactures pesticides and organic fertilizers. BBC is growing rapidly and it’s also backed by a government mandate, which officially certifies its products, giving it a significant advantage over its competition.


“With a population of 1.3 billion hungry people and 750 million farmers, China is also the largest fertilizer market in the world with $17 billion in sales annually. Surprisingly, the Chinese government has recently mandated the use of environmentally friendly organic fertilizers. The level of pollution is staggering there, with environmental welfare almost an afterthought, which makes what I am about to tell you doubly important.

“The mandate is also designed to increase crop yields and minimize the importation of foreign crops, in an attempt to control the food chain and eliminate a strategic risk associated with population stability. This is a major move that does not appear to be recognized yet outside Beijing. Plus, the Chinese have certified only a handful of companies, including Bodisen, to produce these specialized fertilizers.

“Bodisen is listed on both the American and London stock exchanges, differentiating the company from its competitors because of the more rigorous listing requirements as compared with the Hong Kong and Shanghai exchanges. It also means western-style financial transparency, which is critical, given China’s less-than-scrupulous history when it comes to public accounting standards.

“BBC is ranked by Forbes China as the 16 th-fasted growing company in China. But as a microcap, with a valuation less than $250 million, there is a lot of risk involved. But what counters the risk is the firm’s trailing P/E ratio of 22, with a cash value per share of $1.40. Its operating margins are more than 30%, double Monsanto’s and about triple Dow Chemical. BBC holds an 8.6% stake in China Natural Gas (CHNG OTC BB), which just posted a 245% growth surge. CHNG supplies wholesale natural gas to retail stations, distributes to their company-owned retail stations and delivers to residential and commercial/industrial clients. Buying BBC is like getting two China winners for the price of one, and more importantly, gaining yet another foothold in one of the world’s largest emerging markets.


“Bodisen enjoys tax-free status, is exempt from sales tax, VAT, agricultural product tax, and income tax (income tax holiday through the end of 2007 and renewable thereafter. Buy BBC up to $13 a share and allocate no more than 1% of your portfolio to the stock.”

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