Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.
American Dairy, Inc. (NYSE: ADY) is the top conservative idea for 2007 from Ian Wyatt, editor of The Growth Report. He notes, "American Dairy is a pure play in the Chinese dairy industry. It is a small-cap Chinese stock that provides investors with impressive growth in an expanding market at an attractive valuation.
"Helping to drive growth is the company's focus on quality and brand recognition. Consumer concerns relating to quality issues along with rising income levels in China are allowing consumers to spend more on premium products.
"China's market for the consumption of dairy products is at an early stage and poised to grow. The country's current dairy consumption stands only at about a fifth of the world average, according to the Ministry of Agriculture in China.
"In China, there is also a governmental push to promote the drinking of milk as part of a healthier diet. And given that there are over 200 million primary school children in China, the growth potential is sizeable.
"Other key government programs to grow the Chinese dairy industry include exemption from corporate income tax and Value Added Tax (VAT) rebates. American Dairy receives VAT rebates and has a tax exemption through 2009.
"The stock is not widely known by investors. This allows investors to enter into positions early and at decent valuations before the company becomes more known. William Lyons of Westminster Securities, the sole analyst following American Dairy, expects earnings of $1.18 per diluted share in 2006.
"Its current pricing multiple of 16 times estimates seems extremely low for a firm that grew revenues 129% and earnings 154% in the most recent quarter. At these pricing levels, we feel shares of American Dairy are a solid buy with a price target of $25."
To see Ian's favorite speculation for 2007, click here.