What to buy: VanceInfo Technologies (NYSE: VIT)

Why should I buy? Global information technology (IT) services company with internationally diverse work force. Unique China leverage and well positioned for the US and EU markets.

Why now? IT, outsourced IT in particular, is bouncing back across the globe, especially in Asia and China-based VanceInfo is positioned to benefit mightily.

What is the target? Buy up to $22.50 and place a stop loss at $14.75.

Wednesday morning.

I’m making coffee at the office; I looked over at Yiannis, whose office is across the little kitchenette. He’s leaning back in his chair, feet crossed on the desk, twiddling his pen and staring at a detailed Asian map (we have a lot of maps at our offices), all starry eyed. He was obviously recalling something happy, judging by the luxurious smirk across his face. He caught me looking at him and burst out laughing.

Yiannis: Hey man! Do you remember the late 1990s when you could make fortunes? You know, before the Dot Com collapse?

Elliott: Of course I do. Good times.

I slip around the corner to pick up some printouts from the printer, a few feet away. Back to the espresso machine.

Yiannis: Great times man, great times. I was just thinking about this firm I spotted in ’98. They had just floated their IPO and their business model was looking solid, at least by late ’90s standards. They appeared to be doing everything the right way, and then exploded on the scene. They would have gone a long way if their management had been more experienced.

Elliott: Hmm, how many of those did we see?

I asked rhetorically as I entered his office.

Elliott: How did you do?

Yiannis: I saw it all coming…sold at a good price and got the hell outta Dodge!

Elliott: Ha, ha! You always come out smelling like roses!  Are we going out for lunch? I just printed all the notes and charts I need.

Yiannis: So you looked at VIT? I don’t know about lunch today, but VIT is a characteristic example of IT being one of the sectors that are structurally bouncing back. I think outsourcing is here to stay, despite the occasional political turbulence. After all, good outsourcing companies position their clients well for their future and a lot of times they allow a greater degree of flexibility because services and costs can be added, altered or removed depending on the situation.

Elliott: I thought you would never stop, take a breath.

Yiannis: Sorry, I forgot that you are too polite to interrupt…

Elliott: Yes I am, you Club Med bouncing ball. Anyway, the issue with outsourcing….

Yiannis: Maybe you are English and you don’t know it.

Elliott: What the…?

Yiannis: I mean being so proper and phlegmatic all the time.

Elliott: Shut up.

Yiannis: OK. You were saying?

Elliott: I was saying that there are some issues with outsourcing. For example, the control of operations is transferred to a different location and time zone. Also, the language and cultural barriers can create very interesting and time-consuming challenges.

Yiannis: True, but this is where VIT begins to shine. They set up in China in 1995, with the support of IBM and Microsoft to provide offshore services to the US and EU markets. They spent over 10 years establishing themselves with global clients requiring their services in China. In 2007 they set up strategic operations around the world and they’re looking very good for the future.

Elliott: But how does this address my concerns?

Yiannis: Well, they now have a fantastic track record from the past 15 years. Their success has been attributed to their administrative diligence, demonstrating best in breed quality process standards. This coupled with their global coverage and native work force makes their offer very strong. You see? It cuts out the language and cultural barriers, promoting excellent communication, which in turn ensures the client remains in control of operations.

Elliott: Even so, can they actually get the work in the first place?

Yiannis: They already have gigantic clients such as HP, Microsoft, IBM and these are long term and strong relationships…

Elliott: Strong like your ’98 company?

Yiannis: Getting warmed up I see, interrupting huh?

Elliott: Yes, if I am to be English I can also be obnoxious. We still have your Parthenon marbles you know.

Yiannis: Why you want to pull my chain now?

Elliott: Ha, ha. Sorry man. But you have been saying for 10 years that Asia will lead the way, and now you’re telling me Microsoft. What’s the China syndrome for this firm?

Yiannis: Where’s your research Gue? This is a Chinese company! Originating in China and all things Chinese! They’re listed in London and New York because their global presence and diverse workforce position them beautifully for the US and EU markets. But the big kicker is their unique China leverage which gives them all the talent, lower costs, government support and so on that they will ever need. Revenues from China-based clients grew 169% in 2009 and accounted for 40% of net revenues.

Elliott: Yes I know, they just announced earnings, solid numbers and interesting mix. In Q4, China-based clients were 44% of revenue, while US-based ones contributed 35%.  Europe came in at 16% and Japan at 5%. Too much exposure to domestic US.

Yiannis: I knew you would say that. Elementary my dear Watson!

Sherlock Holmes with a Greek accent! Brilliant! You should have been there.

Yiannis: Listen to this; the majority of US sales actually come from Chinese or other Asian subsidiaries of American companies. Only about 18% of total revenue in the fourth quarter was contributed by contracts based in the US. It’s brilliant man, they’re positioned with the emerging companies as well as the fastest growing divisions of the established US companies. And to top it all, they’re also big proponents of protecting intellectual property. They’re ahead of the game.

Elliott: It’s run up recently after the good earnings report.

Yiannis: If the market stays positive, it will continue its run. It’s not as high beta as some other names, which is a good trait to have these days.

Elliott: Yes, I can see it taking another leg higher.
 
Yiannis: Good man. Lunch later?
 
Elliott: Sure, Thai?

Yiannis: Sounds good.

Elliott: I’m buying

Yiannis: It sounds even better now.

Buy VanceInfo Technologies (NYSE: VIT) up to $22.50 and place a stop loss at $14.75.

Follow up on open trades:

Buy Intrepid Potash (NYSE: IPI) under $30 with a stop at $23.25.

Full Disclosure: Our publisher, Phil Ash, is so confident in the value of this service that he personally invests $10,000 in every Stocks on the Run position. In fairness, he executes each buy and sell transaction at the opening bell two full business days after the trade is recommended to our subscribers. He will also use the recommended Stop Loss orders. All return calculations are based on the performance of his actual trades.