Three US stocks for patient investors

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: RussellCleveland, manager of the RENN Universal Growth Investment Trust.

My basic approach has always been to find value stocks, with good management, and then be patient the style Warren Buffett has been preaching for the past 50 years. How do you find good management? We look for managers who are shareholders themselves, who have vision, and whose companies are profitable.

We focus on the American market, including a number of US-traded Chinese companies. One is SinoHub Inc (NYSE: SIHI), which is based in southern China. SinoHub is involved in electronic parts logistics, and manufactures cell phones aimed at markets in Asia and Africa. The American chief executive, Harry Cochran, has an excellent Chinese team with him.

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Over the past three years the revenues have gone from $79.5m to $128.4m to $196.7m. The company guidance is for $250m for 2011. Earnings have also been quite good with 2010 earnings per share (EPS) of $0.67. Yet as I write, SinoHub is traded at $1.50 per share or a little over two-times earnings. It is among the cheapest growth stocks of my career. Why? Because there is a cloud over all US-traded Chinese companies, due to fraud in a few of them I reckon about 10% of the universe. So short-sellers have had a field day. But for diligent investors, it's created huge potential. If SinoHub just sold at ten times earnings, the price would be $7 per share. Once the storm in US-traded Chinese stocks passes, I believe we'll see that SinoHub was a real bargain.

My next pick would be Points International Inc (Nasdaq: PCOM). This is the world's leading company dealing in loyalty points (airline miles, hotel and credit-card points). This is a huge worldwide market: billions and billions of dollars of potential buying power are locked up in these points. The company operates many of the major airlines points systems, such as American Airlines. The key to the business is that individual holders can exchange, purchase more miles, or even sell their miles. Most loyalty-points holders do not know the value they have. The task of Points International is to tell them about this opportunity and how to use it. The company earns fees on all transactions.

The group recently announced a joint venture with PayPal, which currently has more than 90 million customers. This will allow mileage holders to set up an account and use their points as cash for payments. This has big potential for Points International. Revenues are currently over $100m. I am expecting about $5m in EBITDA (earnings before interest, tax, depreciation and amortisation) for this year. The stock is currently about $9, but earlier this year traded as high as $12 when the PayPal deal was announced. It is always fun to invest in companies that have a near monopoly in a growth area.

Lastly, an old favourite of mine is Bovie Medical Inc (NYSE: BVX). It's a well-known name in the surgical suite, with many products to help stop bleeding. Two years ago the share price was as high as $9 then the company was hit with a lawsuit on a very small product area. The market misinterpreted this and the stock has fallen to the $3 level. The suit has been settled in a way I believe to be favourable to Bovie. Meanwhile, the group is getting ready to launch a super new product, J-Plasma, which has been in development for years. This technology can revolutionise surgery in several areas. So I am looking for a big recovery in Bovie's price.