Concerns about slowing growth in China have weighed on the Hang Seng and Shanghai Composite indices for several months. It is interesting to note, however, the recent outperformance of the Hang Seng. So far this month, the Hang Seng was up 7% through Wednesday. The Shanghai Composite lagged with a 1% gain. The Hang Seng looks like its back in a confirmed uptrend but the Shanghai Composite still can’t get out of its own way.
STOCK PICK
When it comes to U.S.-listed China stocks, there’s not much on my radar now, but one name that’s hanging in there just fine is medical device maker Mindray Medical (MR). The company has a market capitalization of just over $4 billion and an average daily volume of 525,000 shares.
OPERATING SEGMENTS
It operates in three segments: Patient Monitoring and Life Support Products, In-Vitro Diagnostic Products, and Medical Imaging Systems.
BIG RALLY
Mindray broke out powerfully during the week of Aug. 10 after reporting strong second-quarter earnings. Quarterly profit rose 19% from a year ago to $0.50 a share. Sales rose 23% to $267.8 million. Sales in China rose 27% to $115.3 million. Sales outside of China rose 21% to $152.5 million.
SOLID FUNDAMENTALS
The company is virtually debt-free with strong cash flow. Annual return on equity is solid at 18%.
Similar to IAC/Interactive (IACI), which I profiled in this space on Sept. 17, Mindray is also working on bullish base-on-base pattern. It’s been consolidating gains for nearly six weeks, firming up nicely at its 10-week moving average. Of course, a break below the 10-week moving average for Mindray would be a bearish development, but it looks like it wants to hold the line for now.
Not that short interest is high in Mindray, but it has been falling. As of Aug. 31, 7.9 million shares were held short, down from 10.1 million as of July 31. For me, strong fundamentals and bullish technicals at Mindray trump a relatively high short position in the stock.
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