Looking For Buy Signals, When Companies Outperform and Their Stocks Don’t

We all know that when a company misses their numbers and guides lower, their stock goes down. Conversely, when a company crushes the consensus, and ups their guidance, the stockholders should be rewarded, right? Not all the time, especially in a topsy-turvey market like we have seen in the past three weeks. Don’t panic and don’t forget that you make your money going in and not coming out. In other words, downturns in the overall market, that cause perfectly good stocks to retreat is a buyer’s paradise. Let’s recap my latest picks since my last update on February 1st.

General Electric (GE). One of my first picks from last year (at $11.62), it was $16.40 when I told you to stay put in February and it saw $19.80 recently, before retreating back to $16.95. I’m not overly concerned, so hold it for now, but of you see $19.80 again, sell at take your 70% return.

Hunang Power (HNP). This Chinese energy company bounced of its $22 bottom and has edged up again to $24.50, before pulling back on the recent wave of selling in all China stocks. It’s now $23.45 down from my original price in March 2009 of $29.34. I would put in a limit buy at $22 and if it sells off further, you can average down. China + Energy = Profits.

China Integrated Energy (CBEH). A perfect example of beating the street and the stock goes down. The street had revenue of $88mm and a net of $.26, and they did $109mm and netted $.27. In the case of CBEH, the concern here is margin compression. While on the surface, this did occur, I spoke to the Company and it’s my opinion that this is a temporary affect due to expansion in both the retail gas station business and they heavy oil distribution business. They are at full capacity on the high margin bio diesel business and will be opening another plant by year end and may further expand through an acquisition. I first recommended CBEH at $4.00 in March 2009; it hit $12.05 recently but has backed down to under $8.00, then bounced up to around $9.25. Normally I would take a double and go home, but I can’t find a better place for my cash. If they hit their concensus earnings of $1.08 a share this year, at 12PE puts them back over $12. Hold it if you own it and buy some if it dips under $8.50. (I own this stock).

Bank of America (BAC).  Well at least it’s not Goldman Sachs (GS). Picked last October at $16.50, it moved up, then retreated and is $15.90. Despite the fact that I am getting nervous about the global picture, in the end, the US seems to be better than Europe and BAC is well positioned to ride out the storm.  Hold it for now.

QKL Stores (QKLS).  QKLS reported a huge 1st quarter. They increased their top and bottom lines by over 25%. The stock was over $6 when I said buy it if it dips below $6. Guess what, it went below $5 a few weeks ago and is currently sitting at $5.20. QKL will add another 20 stores this year (a 50% increase) and they have just opened their massive Distribution Center (DC), which is critical to support their rapid expansion program. The concern here was margin compression, but I think that’s bogus…show me a consumer retail expansion where margins aren’t hampered with start-up costs. Same store sales last quarter were up over 9% and the DC will lift margins up from the mid 17% range to over 19%. If you own it higher, consider averaging down. If you don’t, it may be a great time to add it to your portfolio. (I own this stock).

Shengkai Innovations (under new symbol “VALV”, formerly SHE). VALV has had two explosive quarters and I believe we are just at the beginning. Wait until the open the new plant and triple their capacity. With a net income of 35% of sales, you would think they would selling software and not ceramic valves.  I first recommended VALV at $6.00 and it ran up to $10.50, before pulling back to around $8.25 today. Rodman and Renshaw issued at BUY giving a 12 month target of $21. According to Lewis Fan, the report’s author, next year’s revenue will top $125mm (from $45mm) and income will explode to over $45mm (from $19mm). VALV is on a June 30th fiscal year, which means we won’t have to wait long for these numbers to be kicking in. If he is right, this stock may be the cheapest on my list. If you don’t own this stock, I strongly urge you to take a close look. I don’t want to have to say I told you so. Even my son Martin who turns 10 today, likes this pick. (I own this stock).

JP Morgan (JPM) – I said buy it at $38.50 and it went as high as $48, before the massive sell off in the past 30 days. It’s up a little still at $39.70, and like BAC, I’m nervous, but my gut says hang in there.

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