ANALYSIS: JMU Signals Possible Relief for Undervalued Microcaps Among Chinese Stocks

We see many stocks across multiple sectors significantly undervalued and a reversal of the negative trend in place since 2015 for many Chinese stocks.

Steve Kanaval
    Mar 10, 2019 5:20 AM  PT
ANALYSIS: JMU Signals Possible Relief for Undervalued Microcaps Among Chinese Stocks
author: Steve Kanaval   

The long slide in JMU Ltd. (Nasdaq: JMU) started in June 2015 when the split-adjusted price was $128 per share. Shares have traded lower since then with a few bounces along the way. Anyone buying out of the gate has never been rewarded, and the majority of the shares in smaller Chinese stocks listed on U.S.exchanges are near historic lows.

The landscape for these out-of-favor microcaps (defined as companies with valuations under $100 million) are exhibiting trading action and chart patterns that look like they are making significant long-term bottoms. This makes sense as investors watch headlines between the U.S. and China play out front and center. Trends often last for multiple years and need powerful catalysts to change the direction.

Look below at a long-term chart for JMU, which has a business model focused on catering and food logistics for domestic and international businesses, and the Monday March 4th rally finds undervalued shares of JMU as prices surged 173 percent on big volume.

It is important to know that markets change direction on large volume, and all bottoms or tops occur with massive trade action. This happened here with JMU as long-term holders capitulated, and new value buyers arrived on the scene. The spikes in volume in 2018 paint this picture.

 

After organizing a list of 175 stocks in the CapitalWatch universe, there were a handful of names that stuck their heads back above water after long slides. Shares in JMU were at the top of this list.

The Chinese consumer food sector is ripe for a turnaround once tariffs are lifted and normalization between the two countries sets the stage for global productivity for many of these listed shares. It has taken three to five years for many of these stocks to get traction, and chart patterns and massive over-sold conditions are hinting that many companies are also undervalued for a new global investing community.

The conclusion one draws sorting out the prices and volumes of these smaller stocks is that they are drawing value buyers on a global scale, logically, while others see the patterns forming and are back with more precise filters. Many investors will jump on this narrative of undervalued microcap stocks listed on U.S. exchanges who have sat dormant for years. There are many more JMU's putting in bottoms as we speak.

The screener to use going forward for this upcoming cycle will focus on companies not covered by most Wall Street analysts that have business models revolving around large commoditized supply chains which are listed on U.S. exchanges.

We see many stocks across multiple sectors significantly undervalued, we see a reversal of the negative trend in place since 2015 for many Chinese stocks, and we will likely have a spike similar to the ones we saw last week in JMU.

Price often gets the attention of investors followed by volume levels out of the normal range. These simple screens help any investor determine what stocks are reversing a long-term trend. And we see many stocks who cater to the global consumer as long-term investments, and often these upstart days give us clues for future prices.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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