Thursday, February 16, 2012

LNVGY: East Asia's IBM

In the United States, when you're in the market for a plain-vanilla workhorse PC you first thought tends to be HP or Dell. In East Asia, you think Lenovo.

Lenovo Group Limited (LNVGY), headquartered in Hong Kong, China, bought IBM's PC business in 2005. That put Lenovo on the map to become one of the major players in global tech, with customers in 160 countries, research centers in China, Japan and the United States, and a product line ranging from corporate servers down to tablets and smart phones.

LNVGY has been on the rise from $13.42 on Jan 3 up to today's high of $17.93.

The company is traded on the pink sheets in the United States. It has low liquidity and no options. It trades, on average, 65,000 shares a day.

On the Hong Kong stock exchange, where companies are given numbers as ticker symbols, Lenovo is listed as 0992 and today traded 40.2 million shares.

LNVGY had the most bullish chart of 14 stocks added today to the Zacks top-buy list. DW was the semi-finalist. ALC and TRN completed the final four.

LNVGY's Return on equity is 22%, which counts as growth-stock territory. Long-term debt is minimal, amounting to 7% of equity. Institutional ownership of the U.S.-traded stock is miniscule, amounting to half a percent. If the big dudes want to play with Lenovo, they'll do it in Hong Kong, not New York.

The price is dirt cheap. It only takes 34 cents in shares to control a dollar in sales.

For Americans, LNVGY is a way to participate in a major player in Asian tech development, which mainly means China's development, without the hassle of currency dealing required for trading abroad.

The U.S. price moves according to what happens to 0992 on the Hong Kong Exchange, so LNVGY traders will be perpetually on the trailing edge of events.

The absence of options means that there is no way to hedge a position or generate income in fallow times through covered calls.

Decision for my account: I can see LNVGY as a place to park some money in a "long-term play". I like Lenovo as a company. However, I don't do long-term plays on an entry rule. Long-term is what happens due to exit rules. For entry, I dislike Lenovo's illiquidity. I dislike the inability to trade while the Hong Kong market is open. I dislike the lack of options for hedging. For those reasons, I'm passing on LNVGY.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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