China Model Portfolio Additions
posted by The Traveller on Saturday, May 01, 2010
As previously announced I am adding several new positions to the China Model Portfolio today.
China Armco Metals (CNAM)
Those who follow the model portfolio will remember this stock. We sold it in early March at $9.60 for a 185.71% gain. Now the stock is back down to a level where it is a clear long-term buy again. One month ago the company has issued very bullish guidance for "revenues for the full year of 2010 exceeding $220 million with net income exceeding $12 million." The recent $10 million private placement put enormous pressure on the stock but even if we anticipate full conversion of the issued warrants the company has only 15.68 million shares outstanding and my EPS projection for 2010 is still at $0.85 on a fully diluted basis. And CNAM is currently trading well below the recent offering price of $6.50.
I am buying 1000 shares of CNAM at Friday's close of $5.48 with a 6-9 months target of 12x 2010e EPS or $10.20.
I am adding three more positions to the China Model Portfolio based on the Russell 2000 - Reconstitution Screen for China Small Caps. The time frame for those is 1-3 months with weekly re-evaluation. I consider all three stocks undervalued at current levels with big potential upside on a positive Russell 2000 addition announcement on June 12. There is further downside risk for the general markets at the moment, and those stocks might retreat further in the coming days, but I can not make changes to the portfolio during the week and wait for a possibly more ideal entry. However, I consider all of those worth the risk here, especially as a Russell 2000 speculation but also on a fundamental, value investing approach.
China Recycling Energy (CREG)
Another former portfolio position that we sold for a nice profit. The stock reached its all-time high on March 24 with $6.16 and we can buy it now for 3 dollars less with an unchanged positive business outlook. I am buying 1000 shares at Friday's close of $3.16 with a 1-3 months target of $5.50.
China Yida Holding (CNYD)
This stock held up relatively well and it has fantastic growth prospects in one of the long-term most promising industries in China: tourism. China Yida is widely unknown, very thinly traded with an average daily volume of about 30,000 shares, but it should be pretty safe for a Russell addition and I would expect its investor base to broaden significantly with the index inclusion. I am buying 300 shares of CNYD at Friday's close of $13.55. I expect that the stock takes out its old highs ($16.05) within the next three months and I have a 12-18 months target of $25 on the stock.
Shengkai Innovations (SHE)
This widely unknown company is the dominant provider of industrial ceramic valves in China. I can't possibly try to explain this business but Shengkai has a very nice presentation out that you should dig into. The scenario is similar to China Yida, the stock is very thinly traded and held up well in the recent China Small Caps downturn. I would expect it to move into the double digits within the next two months and from there it should reach the high teens within a year as EPS of $1+ are very likely for FY2011. I am buying 500 SHE at Friday's close of $8.47 with a 1-3 months target of $12 and a 12 months target of $18.