In the pages of my Early Stage Investor service, readers often hear the term “10X.”
As a rule of thumb, our early stage, “venture capital” style investments are only in industries with the real potential to grow 10-fold (or “10X”) in size.
Investing in industries with huge growth potential and gale-force tailwinds at their backs is how you set yourself up to make giant returns. Think of the internet in the 1990s … personal computers in the 1980s … and smartphones over the past decade.
However, in a research report I recently sent to readers, I detailed an industry set for not just 10X growth … not 20X growth … and not even 50X growth … but at least 100X growth. This is undoubtedly one of the best early stage investment opportunities you’ll ever see in your life. Best of all, we get to partner with one of the world’s most powerful wealth creating groups, one with a stunning track record.
If you’ve been a MoneyWire reader for a while, you won’t be surprised to hear where this opportunity is located. More on this in a moment. But first, let me show you some incredible numbers …
A Simple Case for Massive Returns
Sometimes, investing is complicated.
Wall Street hedge funds and banks can create all kinds of complex investments and strategies that only a math genius can make sense of.
However, sometimes making great investments is laughably simple. That’s the situation with the industry I’ll share with you today.
The big opportunity here boils down to just one number …
Specifically, 116-fold growth is what the Chinese government has targeted for its biotechnology sector over the next two years.
In 2017, the Chinese government announced that it intends to make its domestic biotechnology sector constitute 4% of the country’s Gross Domestic Product (GDP) by 2020.
The Chinese economy is projected to reach roughly $15.7 trillion in size (as measured by GDP) by 2020. In 2017, the revenue generated by China’s domestic biotech industry is a tiny $5.4 billion, according to Goldman Sachs.
In order for China’s biotech industry to constitute 4% of the economy (or $627 billion) by 2020, the industry must increase its sales by 116-fold.
I’d like you to keep “116-fold growth” in the back of your mind as I explain what’s happening. It’s really all that matters here when it comes to making hundreds of percent returns — even thousands of percent returns — thanks to this unique situation.
China is About to Create a New Class of “Champions”
China is well known for its large and growing capitalist economy. In the 1970s and ’80s, China was extremely poor and undeveloped. But thanks to capitalism, China is now the world’s second largest economy.
China puts its own unique twist on capitalism. Although the country is technically capitalistic, it’s also authoritarian. The Chinese government exerts a LOT more control over the economy and its domestic companies than the U.S. government does. In order to allow its domestic companies to grow large, the Chinese government often blocks U.S. companies from doing business or gaining influence inside the country. For example, Google and Facebook are not allowed in China.
China also likes to create “national champions”… huge companies that have the implicit backing of the Chinese government. Competing with China’s “champions” inside China is extremely difficult and often impossible.
For decades, China focused on growing its “basic” industries like manufacturing, mining, oil, shipping, and infrastructure building. But now, the Chinese government is set on fast-tracking high-tech industries like artificial intelligence, autonomous vehicles, electric vehicles, e-commerce, and biotechnology.
China wants to compete on the highest levels — and dominate — all the critical industries of the future. This includes having a huge domestic biotechnology industry that develops and sells the medical treatments and therapies of the future.
It makes sense. Medicine and healthcare are trillion dollar-plus global industries. Plus, every government wants its population to be as healthy and strong as possible (more taxpayers). The best, most affordable medicines help make that happen.
The Chinese Government Has a Heck of a Track Record
When the Chinese government says it’s targeting one of its domestic industries for massive growth, it pays to listen. Its track record of creating huge returns for investors is impressive.
Starting in the late 1990s, the Chinese government went on an infrastructure building spree. It built dams, bridges, cities, power plants, highways, and ports on a scale never seen before in history. All that building consumed an incredible amount of natural resources like oil, coal, copper, cement, and iron ore.
The big Chinese oil firm PetroChina was just one of the winners during the infrastructure boom. PetroChina literally helped fuel China’s massive growth, and the stock grew 17X from its IPO in 2000 through the high in 2007.
If you think that’s impressive, take a look at Anhui Conch Cement. The company’s stock was trading at a mere $0.17 per share in early 2000, and today it is around $50 per share. That’s a 294-bagger! As you can tell by the name, the company makes cement and aggregates used to build roads, houses, etc. all over China.
Or consider the results of China’s push to create a strong domestic technology sector. This push began about 10 years ago.
One of the companies that enjoyed government support during that time was a little known firm called Tencent Holdings. Tencent gathered assets and extended its tentacles into many aspects of China’s economy. It was a major beneficiary of the government’s backing. Today, Tencent Holdings is one of the largest companies in the world. The stock rose an eye-popping 67,000% from its IPO in 2004 through January 2018.
From an investing point of view, overzealous government spending in China is a good thing. Even if the goals are too lofty, there is no denying the power of the Chinese government and how its backing can boost an entire industry and related stocks.
Now you see why I paid close attention when I learned how strongly the Chinese government is pushing its biotech industry. It is determined to put the industry on the same level with U.S. biotech … and do it in just a few years. This will require the Chinese biotech industry to grow more than 100-fold.
I believe the Chinese government’s public relations team got carried away by saying they want that enormous growth by 2020. I think five to seven years is more realistic.
But 100-fold growth in even 10 years will make the Chinese biotechnology sector one of the greatest growth stories in modern history. I’m willing to be patient for life-changing returns.
9 Catalysts That Will Drive Chinese Biotech Stocks Much Higher
Investing in a small industry backed by the Chinese government is a recipe for huge returns, from triple-digit profits to 10X your money to possibly even more.
However, before investing my hard-earned money, I want to see more than the backing of a sometimes unpredictable government. Here are nine more reasons why I believe investing in Chinese biotech stocks will be one of the best wealth-building opportunities of the next 20 years.
Catalyst #1: China’s Version of the FDA
The National Medical Products Administration of China (NMPA), that country’s version of the FDA that approves drugs, medical devices, and cosmetics, has transformed itself to be on par with its peers in the U.S. and Europe. With the NMPA’s newfound respect, the Chinese biotech industry can now be taken seriously by the rest of the world. This opens the door for approved drugs in China to quickly spread.
Catalyst #2: Demographics
China’s massive population of nearly 1.4 billion people unfortunately means greater numbers of people who are sick. Twenty percent of the world lives in China, but it has 30% of all cancer patients, so the government is funding massive research into treatments. China’s population is also aging. Given the huge need for drugs over the next decade, simple economic theory points to a big boom in Chinese biotech.
Catalyst #3: Technology
The increasing use of artificial intelligence (AI) in healthcare will lead to medical breakthroughs. With more access to gene sequencing data, AI computers will be able to create drugs faster. China could be the best positioned country in the world because cutting-edge AI technology feeds off data, and China has vast amounts of health information on its citizens with its looser privacy laws.
Catalyst #4: Local Governments
Local cities and territories in China are trying to attract biotech firms. Think about the wealth that Silicon Valley created for surrounding areas … or the research triangle in North Carolina. Cities are already throwing out big incentives to Chinese biotech firms to set up shop in their area.
Catalyst #5: Diversifying the Economy
Beijing wants the pharma and biotech industries to help lead growth in the future. Depending less on the export-driven manufacturing industry will lead to a bigger economic boom domestically.
Catalyst #6: Talent
In the past, China could not match the number of educated scientists in other countries. That has changed as more American-educated Chinese are making their way back home. China is also dangling carrots to attract the world’s top scientists through its China’s Thousand Talents Program.
Catalyst #7: Gene Editing
Gene editing is one of my favorite long-term investing themes within the future of medicine. Scientists are working toward curing diseases the same way you or I make an edit while typing at our computers. China had at least nine gene editing studies taking place as of the end of 2018.
Catalyst #8: The Drug Trade
For many years, Chinese companies would license drugs from their large Western counterparts to sell in China. That is quickly changing. Chinese biotech firms are starting to license their drugs to U.S.-based companies to sell outside of China.
Catalyst #9: Just the Beginning
I’ve seen estimates that up to 100 Chinese biotech companies are preparing to go public in the near future. I realize that seems insanely high, but China’s biotech companies used to be unable to list on a major Chinese stock exchange unless they had revenue. That eliminated nearly all of them. That rule has changed, allowing capital to flow into Chinese biotechs.
Building Your Own China Biotech Basket
One of our favorite strategies in Early Stage Investor is what we call our “buy a basket” strategy, which is like building our own exchange-traded fund (ETF). This is a must for the Chinese biotech sector.
As you know, an ETF is a diversified investment fund that trades like a stock. Most hold dozens or hundreds of different companies. They can give you diversified exposure to a sector or country, and can be very useful investment vehicles.
However, because ETFs typically hold so many stocks, an ETF buyer is virtually guaranteed to end up owning a lot of average companies (and even some crappy ones). You get the bad with the good.
On the other hand, if you want to profit from a big business or technological innovation, you can try to buy one single stock.
Buying a single stock can pay off massively. But doing so exposes you to significant downside risk. If there is a major problem at your chosen company (like an accounting scandal or a crazy management decision), you could suffer a big loss.
That’s why I like taking the middle of the road approach when possible … which is “buy a basket.”
When I say “buy a basket,” I mean pick three to six of the best companies in a sector and buy all of them.
By purchasing a handful of the best companies, you avoid owning the weak players. This gives you lots of upside potential while providing you with some diversification. It’s a smart way to invest in big themes that gives you an excellent balance of risk and reward.
The upside potential of the Chinese biotech sector is difficult to quantify, but you can see that it’s big. If you are able to pick the companies that create the next blockbuster drugs, the gains could be 10X to 50X your original investment. It would be like buying U.S. biotech leader Amgen (NASDAQ:AMGN) in the late 1980s. You would have made 250 times your money.
I see Chinese biotech stocks as a little further along. I would say it is more like getting into U.S. biotechs in the mid-1990s. You could buy Amgen for $5 per share at that point, and today it is trading around $195. That 39X return turns a $5,000 investment into $195,000.
Here’s another way to grasp some of the upside potential. Amgen has a $118 billion market cap and did $23.7 billion in sales in 2018. A few of the companies we will put in our Chinese biotech basket could generate similar sales in the next decade. We can buy these stocks when they are valued at $2-$4 billion.
The basket approach has worked well in the past with biotech stocks. From the mid-1990s through the high in 2015, the Nasdaq Biotech Index was up 28-fold.
I am extremely bullish on China and the big opportunities in several sectors, but China’s biotech industry tops the list.
Investing alongside the mandates of the Chinese government is one of the world’s most successful investment strategies. When the Chinese government wants to create an industry, it does.
The Chinese government wants to dominate biotechnology and healthcare over the coming decades. My suggestion is to take the Chinese at their word … and own a basket of the best Chinese biotech stocks. It’s one of the top “early stage” opportunities around.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of Investment Opportunities and Early Stage Investor. He has dedicated his career to getting investors into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA), +1,044% in Tesla (TSLA), +611% in Liquefied Natural Gas Limited (LNGLY), +324% in Bitcoin Services (BTSC), just to name a few. If you’re interested in making triple-digit gains from the world’s biggest investment trends BEFORE anyone else, click here to learn more about Matt McCall and his investments strategy today.
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