Late Filers Set to Report This Week

A large number of Chinese Small Caps, mostly OTC-traded companies, filed an extension to their annual reports by the end of March. All of them are now set to report by April 15, and there might be some good opportunities coming out of this. Remember that many of the following companies do not have a history of publishing a press release with earnings, so it would be wise to monitor SEC filings in the next 2 days.

Asia Cork (AKRK.OB)

Manufacturer and distributor of cork and cork products. I am expecting EPS of $0.09 for the year. Watch out for more detailed growth plans (incl. acquisitions) and news about the planned share offering. I like the stock at current levels.

BioPharm Asia (BFAR.OB)

The company is selling traditional Chinese medicine and other drugs. Very cheap at current levels, the company reported EPS of $0.15 in the last two quarters alone. High growth rates in the past two years. Watch out for hidden guidance in the 10-K as there probably won't be a press release.

China Growth Development (CGDI.OB)

CGDI owns six shopping malls and plans to acquire more. Consistently profitable and trading below book value. This one could double with a good report. Watch out for leasing rates, expansion plans and operating costs (power and heating).

China Agri-Business (CHBU.OB)

Sells organic fertilizer and bactericides to Chinese farmers. Plans to establish their own direct sales network. Stock rallied last week, about doubled for the year, so be careful here. There are faster growing companies in the sector, I'm not a fan here.

China 3C Group (CHCG.OB)

Electronics retailer in trouble. Promised to do everything necessary to turn the business around. Trading below cash at current levels. A return to profitability or just positive 2010 guidance would make this a clear buy at current levels below $0.50.

China Carbon Graphite (CHGI.OB)

After a TheStreet.com induced hype in March the stock fell back below book value. I'd like to see them reporting well above $1 million in net income for the Fourth Quarter, which could bring CHGI back on the radar screen of many traders.

China Industrial Waste Management (CIWT.OB)

Expect the filing for this one in a few hours as the company announced a conference call for later this morning. A very important industry for China, but the whole sector is underperforming so far this year. Not cheap based on past numbers, it all depends on future guidance.

China Kangtai Cactus (CKGT.OB)

One of my favourite picks in the China OTC space. Very cheap, high growth rates, several promising business segments, but apparently many US investors are only reluctantly investing in a cactus farmer. I'm confident that they will deliver this week.

China Organic Agriculture (CNOA.OB)

CNOA has several seemingly unrelated business segments in the agricultural/food area. Their newest one is blueberries. Just watch out for bottom line numbers, the stock is very liquid and many people are waiting for the annual report to jump in (or not).

China Shuangji Cement (CSGJ.OB)

The stock doubled over the past few weeks and I believe that this one has to report way above expectations just to keep its current levels. It doesn't have a history of doing so, but I am looking forward to getting surprised for once.

GC China Turbine (GCHT.OB)

Wind turbines manufacturer just coming out of development stage. Their press releases with project agreements have been frequent, their guidance is astronomical, any reassurance that their business plan will be achievable could propel this one to much higher levels.

Huifeng Bio-Pharma (HFGB.OB)

Huifeng supplied the pharmaceutical industry with rutin and related plant-derived chemicals. The company issued very bullish guidance in February and is very cheap at current levels with a P/E of less than 5. Also plans to uplist this year. Watch out for guidance confirmation.

Jade Art Group (JADA.OB)

They are selling jade. We hear nothing from the company outside of earnings filings, so key here is to watch out for new sales contracts, and ideally for new customers. If they report any of that the stock should trade much higher, if not then I would avoid it here.

New Energy Systems (NEWN.OB)

Lithium-ion battery producer on the verge of uplisting to Nasdaq. Crazy cheap here compared to its peers. We get the first consolidated earnings report with their two big acquisitions. Expectations seem to be low.

Songzai International (SGZH.OB)

Another one of those Chinese companies that leave shareholders in the dark most of the year. A coal miner that was ignored in the Chinese coal rally. Huge potential with a good 10-K, even bigger potential with reignited uplisting chatter.

Earnings Previews, Part 1

American Lorain (ALN) reports on March 30 before the open. The stock is doing well so far this year (up 15%) after it beat Q3 estimates nicely. One analyst expects ALN to report Q4 revenues of $58.3 million and EPS of $0.20. This one has further upside with a good earnings report.

Biostar Pharmaceuticals (BSPM.OB) has already pre-announced FY09 numbers with $52-$54 million revenue and $16-$17 million operating income. Watch for confirmation when they report next week. BSPM has already provided guidance for FY10 with $69-$71 million revenue and $16.2-$17 million net income, mind the difference between 'operating' and 'net' here. The stock is expected to move up from the OTC/BB in the very near future, keep your eyes close on this for an announcement.

China Agritech (CAGC) reports on March 31 before the open. The stock is up a whopping 95.7% for the year and now sports a hefty market capitalization of almost half a billion dollars. Whatever they report it will hardly be sufficient to support the current stock price from the fundamental side, but an earnings beat combined with strong forward guidance might reignite the strong momentum CAGC enjoyed for most of its Nasdaq life.

China Green Material (CAGM.OB) is down 12% for the year so far but as the stock reached its all-time-high at the turn of the year it is still performing well. CAGM is currently priced at 10x trailing earnings and 3x sales and I believe for being able to test its highs again the company should report an uptrend in both earnings and net income, both year-over-year and sequentially. CAGM reported $1.11m net income on $4.19m revenues for the Third Quarter of 2009.

China Auto Logistics (CALI) reports on Monday, March 29 before the open. The stock has not participated in the China automotive stocks rally so far and is one of the few in the sector that are down for the year (15%), trading range-bound between $4.20 and $4.70 since late January. Look for revenues of at least $60 million and net income of $2 million for a possible break-out.

China Clean Energy (CCGY.OB) is up 29% for the year already but I see much room for further upside as the company guided back in January for Q1/2010 revenues of $7.3 million or 150% growth from 2009 numbers. Their new chemical plant started operating on a commercial basis in January and for the yet-to-be-reported Fourth Quarter it was still in trial production. We do not know if this trial phase generated significant revenues and I do not expect the company to report outstanding numbers for this period, but that doesn't matter as we should see a reiteration of Q1 guidance which positions the company as a growth play that is trading well below book value.

China Electric Motors (CELM) will be reporting their first quarter as a public company after the market closes on Tuesday, March 30. I would keep a close eye on that one as CELM's industry peers (HRBN) reported strong growth for Q4/2009 and CELM has yet to issue guidance for 2010 and basically introduce itself to the US investing world with their first public conference call. Everything about this company looks very promising to me and we could see big money taking a shot at CELM if those events go well.

China Growth Development (CGDI.OB) is due with their annual report by March 31. We won't see a conference call, probably not even a press release, the company's investor relations are non-existent and it's one of those hidden OTC stocks most people have never heard of. CGDI is profitable, reported $900k net income on $4.5 million revenue in their most recent quarter, and the stock is trading at less than half of its book value. If they report another profitable quarter on top of those numbers then the stock could take off from currently depressed levels. A highly speculative trading idea for a possible 100%+ gain.

China Energy Recovery (CGYV.OB) is another widely unknown China OTC play. But contrary to CGDI all the metrics here say 'avoid'! The stock is down 42% for the year and closed 2 cents off its lows on Friday. Watch for Fourth Quarter numbers more than FY09 ones. The company will likely report a small profit for the year but the trend has been down lately. Last quarter CGYV reported a loss of $0.12 million on revenues of slightly above $6 million.

China 3C Group (CHCG.OB) is trading well below book value and cash on hand, actually it looks like one of the cheapest stocks around based on those numbers alone. Though the stock is down 10% for the year and trading around 45 cents for the past two months. The company posted a big loss for the Third Quarter and Fourth Quarter numbers will likely not look better as CHCG expects their "business performance for the 2009 fourth quarter to be on par with that of the third quarter." The key here is to look for signs that the company can turnaround their business, if there is light on the horizon the stock would be a clear buy at current levels:

"While we expect the remainder of 2009 to be challenging, we remain focused on building a platform for long-term sustainable growth. We have a lot of work to do but believe we have the right plan and managerial team in place to execute on our mission. We look forward to updating you on our developments in the months ahead." (Source: Q3/09 press release)

China Carbon Graphite (CHGI.OB) is in a strong uptrend lately, both for their business with a 50% sequential rise in earnings last quarter, as for their stock price which has appreciated almost 60% this year. Watch out for a confirmation of this trend with Q4 and year end numbers that are due next week. The stock benefited hugely from an internet plug this month but is down about $1 from its mid-month highs and that would be the target for the stock with a trend confirmation.

China Gengsheng Minerals (CHGS) plans to release fourth quarter results on Monday, March 29, after the close. The stock has gained 40% so far this year on several catalysts as the NYSE Amex listing and new contract announcements. Though CHGS is currently trading well below its March 5 high of $4.30. For the stock to resume its uptrend I would be looking for revenues of $15.5-$16 million and net income of about $1.8 million.

How Rick Pearson Moves the Market

The biggest problem for most Chinese Small Caps on US exchanges is that they are struggling to get their story out to the investing world. There are so many profitable, high-growth companies in this space which are trading at a significant discount to their domestic peers, a discount so steep that it is not justified by the much higher risk to invest your money in China alone. Reasons for this are plenty: lack of analyst coverage or coverage only by second tier brokerage firms, bad investor relations, lack of transparency for business developments and projections. But the main problem is that too few people tell their story to a greater audience.

Rick Pearson is one of those few people out there who has the platform (TheStreet.com) and the background (education, language, location) to pick up some of the compelling stories and he is doing that quite frequently. When Pearson publishes an article about a thinly traded Chinese stock on the OTC Bulletin Boards, this stock is usually reacting instantly, and massively!

During market hours on January 11th, Pearson posted an extensive interview with Subaye Inc. (SBAY) CFO Jim Crane on TheStreet.com. Actually it was more like an infomercial for Subaye than an interview. Subaye is a tiny Chinese media company that likes to compete and compare itself to the big players in the industry. The stock traded on the OTC/BB on very low volume, the average daily volume of the last 20 trading days was just 8190 shares.

After Pearson's article was published the stock surged from $16.00 to $21.75 to close with a 35.9% gain for the day on 4x average volume. The following day the run continued and the stock reached a new all-time high at $26.00, a whopping 62.5% surge within roughly 24 hours, to close at $23.50. And on January 13th, SBAY reached an intraday high of $24.50 when heavy profit-taking pushed the stock down to $20.00 again on the heaviest volume in its history of more than 84,000 shares.

All this craze faded pretty quickly and in February we saw SBAY shares trading mostly in the $12-14 range on microscopic volume until the company announced a surprise move to Nasdaq a few days ago when volume and volatility picked up again, though the stock never again reached the $26 level nor the record volume after Pearson's plug. Now the stock is back to where it was on January 11th, closing yesterday at $16.15.

On March 2nd, Rick Pearson featured OTC/BB-traded Sino Clean Energy (SCLX) as "a stock with multi-bagger potential". The company is in the liquified coal business and its stock is heavily diluted with options, warrants and convertible debt. SCLX was trading range-bound between $0.37 and $0.43 on a low average volume of 233,000 shares (less than $100k dollar volume) in the two weeks before Pearson's story appeared. That changed instantly when the article was posted and the stock exploded intraday from $0.40 to close at $0.53 for a 32.5% daily gain. Volume was 3.36 million shares or almost 15x average daily volume.

As with Subaye, the craze lasted several days, SCLX took out its former 52-week high and the peak was reached on March 8th with an intraday high of $0.95 (a 137.5% gain since Pearson's plug) on record volume of more than 6.2 million shares. The stock is still holding up very well now, it closed at $0.77 yesterday (March 18), so if you followed Rick Pearson's recommendation you are still sitting on a 90%+ gain now.

It might have been encouraging for Rick to see how well his SCLX article worked out, because just a week later he plugs another widely unknown, thinly traded OTC/BB stock on his TheStreet.com column. China Carbon Graphite Group (CHGI), a tiny Chinese maker of carbon and graphite products (duh!) has been introduced to his readers as "the next stock to skyrocket".

Rick Pearson's CHGI article was posted on TheStreet.com on March 9th before market open, but we can safely assume that a version of his piece has been floated already during market hours on March 8th as that day saw a huge spike in volume and price, and the article mentioned a current share price of $1.90 when CHGI closed above $2 that day and never again fell below that level. The volume of 664,000 shares on March 8th was by far the highest volume in CHGI's history, staggeringly high if you consider that the stock has traded less than 10,000 shares in five of the previous seven days.

On March 8th CHGI's share price surged 34.2% from $1.55 to $2.08, but to be fair let's take the $1.90 mentioned in the article to measure the effect of Pearson's plug. March 9th saw a turnover of more than 2 million shares or about 150x average daily volume, and the stock closed at $2.70 for a 42.1% gain from the $1.90 level. It didn't stop just there as CHGI climbed further to reach an all-time-high of $3.50 on March 16th which translates into a 84.2% for everyone who followed Pearson into the stock at $1.90.

Either the craze is fading now or the stock is hit by heavy profit-taking as the share price came down by more than one dollar in the past two trading days alone to close at $2.45 on March 17. We will see if it goes back to where it started like Subaye or if it can settle at a substantially higher level as Sino Clean. Time will tell.

So what do we learn from all of this? Tiny OTC/BB-traded stocks can be moved massively by a single article in the right spot. And that move can and will eventually fade if it is just based on that one article. What every investor should do at all times and no matter what is: do your own due diligence! Read all the available filings, get your own picture of the company you want to invest in, be comfortable with what you are holding for a reason, your very own reason. Then you can benefit from moves like those induced by Rick Pearson, otherwise you might be jumping on the famous bandwagon when it is already hot and sticky up there.