In a moment, I’m going to tell you about two of my favorite semiconductor companies. But to illustrate why I like these two companies so much, I’d like to first talk about my recent visit to the Tokyo Metropolitan Central Wholesale Market, also known as the Tsukiji market.
The Tsukiji market is the largest wholesale fish market in the world, the lifeblood of 12 million Tokyo kitchens. Millions of dollars worth of fresh fish, vegetables, fruit, meat, and flowers are sold every day. Over the course of a year, more than $6 billion in seafood gets bought and sold there!
At about three in the morning, delicacies from around the world start arriving by truck, boat, and plane. Two hours later, 65,000 workers are participating in an elaborate dance of commerce that is truly a fascinating spectacle.
I went to the Tsukiji market purely for fun (and some of the freshest, most delicious sushi I’ve ever tasted). But I was also reminded of one of the most valuable economic lessons any investor can learn …
Tons of Tuna, Ice and Money:
What Tsukiji Can Teach You
As you know, seafood isn’t cheap. But you’ll be amazed at how much a huge tuna goes for at Tsukiji market. One frozen fish can easily fetch $30,000 … $40,000 … even more. It isn’t uncommon for a jumbo, top-quality tuna to go for more than $100,000!
During my visit, I befriended the English-speaking son of one of the fish merchants. “Your father must be very rich,†I said to him.
“Ha,†he replied! “The guy getting rich is the ice salesman. He’s the one who supplies the crushed ice to the fish merchants. He gets a steady flow of income whether tuna prices are up or down. Tsuboi-san, not my father, is the rich one.â€
Instantly, I was reminded of the famous stories of the California gold rush: How thousands of prospectors wound up as paupers, while the guys selling pick axes and supplies (like Levi Strauss) made big fortunes.
Just to make sure my new friend wasn’t being modest, I strolled down to the ice station to see for myself. Sure enough, there was a line of 20 or 30 people waiting for ice. And as I stood watching, the line only got longer!
Remember, this was in December. Just imagine how busy the ice man must be in July and August! No question, Tsuboi-san had a heck of a business going.
Now, I don’t have a way for you to invest in Japanese ice. But I can tell you about two Asian companies following a similar strategy.
Forget the Fish;
Invest in Chips …
My Asia Stock Alert subscribers are currently investing in two companies that perfectly illustrate the idea of selling ice rather than fish.
The first is ChipMOS (Nasdaq: IMOS) in Singapore; the second, Siliconware Precision Industries (Nasdaq: SPIL) in Taiwan. Both companies test and package microchips. It might not sound very exciting, but it’s an extremely important (and profitable) business. Here’s why:
Dell doesn’t want to send you a computer that doesn’t work. Same goes for any other business using semiconductors in their products. I’m talking about makers of cell phones … DVD players … microwave ovens … SUVs … or Sony Playstations. Every chip that goes into these devices has to be tested.
That’s where ChipMOS and Siliconware Precision come in. As support players in the semiconductor world, they receive unfinished chips from customers, test them, and then put them into specialized protective casings for use in end products.
Like the ice vendor at the Tsukiji fish market, these companies don’t give a darn who makes the fastest, sexiest, coolest chip. All that matters is the fact that the world is using more and more chips. After all, more demand for chips means more testing (and higher profits).
It also helps that chips are getting faster and more complex. Here’s how an executive at one of the chip testing companies summed it:
“Mr. Sagami, let me tell you why you should invest in my company. The secret of this business is that the more complex a chip becomes, the longer it takes to test that chip. And the longer it takes to test that chip, the more we charge.â€
It’s a simple-but-lucrative strategy, and it’s paying off in spades.
Look at Siliconware Precision: Founded just five years ago, it has already seen soaring revenues and profits. In the third quarter of 2006, the company’s sales jumped 26% from the same period last year. Profits jumped by an even more impressive 45%!
Now, what type of price do you think you’d have to pay for a company growing that fast? 40 times earnings? 30? 20?
Try 10 times earnings! That’s right … Siliconware Precision is growing faster than most U.S. tech stocks, but its stock is selling at a much lower price-to-earnings ratio.
And ChipMOS is no slouch, either. Its shares recently jumped by 10 whopping percentage points in one stinkin’ day! Not many stocks make that kind of move.
You think that sounds good? Heck, since I recommended Siliconware Precision to my Asia Stock Alert subscribers in July, it’s gained 51%. That’s not a misprint — 51% in just five months.
Of course, I can’t take all the credit for those impressive results. Sure, I did my research and found these two gems … but the most valuable part of the process was simply investing in the right markets.
A Lot of Asian Stocks Are
Going Through the Roof!
Yes, the Dow Jones has been doing well. But it looks like an old nag headed for the glue factory once you compare it to what’s going on in Asia.
For example, the Shanghai market busted through to a new all-time high last Thursday. So far this year, the index of the country’s stocks catapulted 94%.
Markets all over Asia — Hong Kong, South Korea, Singapore, etc. — are jumping like cats on hot tin roofs. And all over Asia there are plenty of companies that are more like ice vendors than fish salesman.
While American companies are killing each other to come out with the fastest chips, the hippest fashions, or the coolest cell phones, dozens of companies in Asia are quietly performing basic assembly, construction, manufacturing, and support services.
So, if you’re a stock investor but you haven’t stuck a toe into Asian stocks yet, I think you’re missing out on some of the very best investment opportunities in the world. Make a New Year’s resolution to diversify your portfolio in 2007!
Best wishes,
Tony
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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