Twice In the Past Year:
Iíve completed this twice in the past year. Hereís how it works. I came across a position in an oddly underfollowed micro cap stock with significant numbers and a really low valuation.
Because of my extensive network of contacts, I know the company is going to launch an initiative to bring itself to the awareness of hundreds of thousands of investors.
I identify thinly traded stocks that have been thoroughly ignored for long periods of time can trade up very briskly. I trust this will be the next one.
A Story of a Home and a Train:
Have you ever heard the story about the house on Long Island no one could persuade somebody to buy? It was listed for years, and the owners kept trying to hire a real estate agent who may possibly find a buyer.
It seems a train passed behind the house twice a day, and it got loud for a couple of minutes each time the train went by.
Real Estate agents kept piling up brush and other obstacles against the back fence, trying to hide the train tracks from potential buyers. No offers ever came in. No one seemed to be fascinated.
Finally, the owner found an agent with a diverse methodology. He cleared all the brush away from the backside fence. When he brought likely buyers to the house, the leading thing he did was usher them to the backyard and reveal them the train tracks.
He then explained the trainís noise had driven the price of the home down 10% as compared to other comparable homes in the area, so if you didnít mind the noise twice a day, you were in receipt of a bargain.
The house sold in a wee, and the new owners were very happy with the bargain they got.
Hereís the position- Letís clear away the brush on China Shandong Industries, and find out why itís such a bargain.
China Shandong (OTC BB: CSNH): As Cheap As It Gets:
In my 23 years of investing in small cap stocks, Iím still amazed when I come across a bargain similar to this.
So, letís move away the brush and out why this stock is so cheap. For starters, no one knows about it. The company has never made any effort to get a message to investors, and itís been inaudibly chugging along, increasing at a significant pace and making gobs of money.
Secondly, itís in a boring industry- the company makes furniture. So, let me ask you this- do you find anything boring about these annualized numbers based on the six months ended June 30th?
$134 Million in Annual Revenues
70% top line growth
27% gross margins
$22 Million in net income
$.50 in Earnings Per Share
Total Assets of $76.5 million vs Liabilities of $13.4 million
Wall Street tends to overlook companies in industries that donít produce the hot story de jour. Smart investors do not.
Take into account the price performance of furniture maker Lazy Boy (LZB) coming out of the 2008 recession.
In early 2009, rather boring furniture maker LZB in reality traded below $1 per share, and Wall Street couldnít have cared less about their legend.
If you had the courage and regular sense to invest in this one when no one was watching, you netted 1400% on your money in about six months.
Itís also worth noting- in 2009, when this stock made a 1400% move, the company delivered $1.226 billion in revenues and $122 million in net losses. LZB curved around and made $32 million in 2010- but the actual money in the stock was made 6 months earlier in 2009.
Thereís zero boring about a 1400% profit on your invested capital.
China Shandong (CSNH): Located in the Sweet Spot:
As you can comprehend from the map, CSNH is located on the North Eastern coast of China. The company is right on the border of the Shandong and Anhui Provinces. The region is very rich in wood with large quantities of poplar and paulownia easily available.
According to its SEC filings, CSNH owns 19 plants in 4 different industrial parks. Their 1.2 million sq ft of manufacturing space covers 49 acres of property.
From this manufacturing base, CSNH produces over 20,000 different products. Their handcrafted straw and wicker accessories you see pictured below are made in their employeeís homes, while the larger items require hi tech manufacturing, and are mass produced at the 1.2 million square feet of manufacturing.
Their products are carried in stores all over the world together with the US, Denmark, Germany, the UK, Spain, Italy, Sweden, Canada, and Taiwan.
IKEA is one of their prime customers along with Restoration Hardware and PotteryBarn. So, next time your wife brings home that 6 bottle wicker wine carrier you see pictured above, itís likely it was manuctured by CSNH.
CSNH: Ready For The notice:
to the same extent I said in the intro, this is my 3rd distinctive Situation idea in the past year. As soon as I find these, Iím nearly always right.
Last October I found China Electronic Holdings (CEHD) on October 1 at $3.47. The sell advice came on December 7 at $6- 73% in 5 weeks. Itís in the archives at EmergingChinaStocks.com. a different boring story- a chain of rural appliance stores. We just made money.
My next distinctive Situation was China Modern Ag (CMCI). This one only took 4 days before I suggested the sell. It was $1.10 on May 28th, and hit its all time high of $1.60 in early June for a 45% gain in a few days. This boring dairy producer immediately made us money.
Over the next several weeks, CSNH will get in touch with out to hundreds of thousands of investors for the first time to report its story, and as blown out and thinly traded as this stock is, I think it will trade up rather fast.
As you can distinguish from the chart, CSNH did a 5 for 1 reverse split back in April. This is the opposite of a forward split. This reduced the number of publicly traded shares 5 for 1, thus creating a shortage when buyers come looking for shares.
Fundamentally, according to its SEC filings CSNH achieved $67.1 million in revs in the first 6 months of 2011, and netted $11.8 million.
This equated to Earnings Per Share of $.25 for 6 months, or $.50 on an annualized core.
If the stock can obtain its way to a mere 10 multiple, it should trade at $5.00 easily. At the current level in the $.70 to $.80 range, the valuation is simply absurd.
Over the next several weeks I expect volume to materialize and the chart to shape up. As with my other two unique Situations, hundreds of thousands of investors will hear about this stock in the near future.
I may possibly be advising locking in a profit at any time, and will do so with a ďFlash AlertĒ for the subscribers at EmergingChinaStocks.com. You can sign up for free two week tiral by clicking the link at the bottom of the article.
Disclosure: I am long shares of CSNH everywhere from $.40 to about $.68. Iíll notify my subscribers at EmergingChinaStocks.com when I begin locking in my profits.
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