Monday, May 19, 2008

ABAT & CPSL - first two stock purchases

I want to remind everyone that my investment criteria is really what is driving these investment picks. Aside from that, I want growth at a REASONABLE price. I am also sticking to micro/small cap stocks so that, in the event that one of these companies continues growing at staggering pace for the long-term, I can ride it all the way up :)

First Pick
ABAT - $3.50 purchase price. Today @ $4.19 but trending up nicely. This seems like an easy pick for me.

$9 1 year target price, which would be 28x an estimate of $0.32 for the year. Given the 100% Y-Y growth, 8 cent Q1 per earnings result, etc I could make the case for a higher price but, until I hear about expanded production capacity, which would likely crimp the EPS growth, I'll keep my estimates conservative. It would be dumb to imply a higher multiple given that I know additional capacity will likely be purchased/added, which would hurt EPS ...

1) Strong Revenue Growth
2) Strong EPS Growth
3) Very strong backlog - Likely going to add capacity as well to fuel next stage of top-line growth

Revenues for the first quarter ended March 31, 2008 were a record $10,031,969 compared to $5,363,923 for the same 2007 period, an increase of approximately 87%. Advanced Battery Technologies realized net income of $3,848,478, representing $.08 per share, after $629,445 in taxes for the quarter ended March 31, 2008. For the quarter ended March 31, 2007, the Company's pre-tax income of $1,338,036 was identical to its net income, representing $.03 per share. The 2008 quarter represents about a 187% gain in net profit.

Mr. Fu added, "Our production capacity at current normal operating hours is about $45 million per year. With a backlog of approximately $57 million for delivery throughout the next 21 months we are confident we can continue to meet our aggressive targets going forward, while still developing company favorable options to increase added production capacity. This growth reflects the continued demand for our advanced PLI battery technologies and related products. In addition, we are optimistic for the balance of 2008 and beyond.

3) Hybrid Motorcycles. If you are going to be ECO friendly this is the route to go. HUGE export opportunity + growth opportunity throughout Asian economies.

#2 Pick - CPSL (China Precision Steel) - Investment thesis is growth in middle class in china = more domestic demand for products that require steel. Simple as that.
Avg. cost of $4.80, today @ $7.96. I have made a nice paper profit on this stock so far, purchasing multiple lots at various prices. I think somehow speculators are thinking it is a play on rebuilding China following the earthquakes there in the last 2 weeks. Truth be told, they are wrong. These guys aren't doing steel for buildings but people see a potential supply/demand imbalance in the short-term and are driving this stock up on CRAZY volume.
China Precision Steel, Inc., a steel processing company, engages in the manufacture and sale of high precision cold-rolled steel products in China. The company produces and sells precision ultra-thin and high strength cold-rolled steel products with thicknesses ranging from 7.5 mm to 0.03 mm. It also provides heat treatment and cutting of medium and high carbon hot-rolled steel strips. The company's precision products are primarily used in the manufacture of automobile parts and components, plane friction discs, appliances, food packaging materials, saw blades, textile needles, microelectronics, packing, and containers. It sells its products in China, Nigeria, Thailand, Indonesia, and the Philippines. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong.
Analyst Estimates - 0.24 this year and 0.37 next year or 35% growth. $.37 x 35 multiple = my target price of $12 - $13. They are adding ANOTHER production line with the current one running at 50% capacity, which would normally worry me except their recent results show 61% top line growth!
Recent EPS announcemnt
Operating income was $4.4 million, up 136.9% from $1.9 million in the third quarter of fiscal 2007. Operating margin increased to 23.5% from 16.0% in the year ago period. <--I think this is due to increased factory utilization....

Sales growth was Great!
Revenues for the third quarter of fiscal 2008 were $18.7 million, up 61.3% from $11.6 million in the third quarter last year. The increase in sales revenue is due to increased production and exports of low carbon hard-rolled steel coils and subcontracting income during the quarter.

Technical Analysis
This stock is trading its entire float of shares day in and day out. Anyone short the stock is getting crushed as the stock is getting more and more volume and going up on that volume. The weekly chart below indicates that the RSI can still go up for a bit before it is overbought so I will wait to sell any shares for the time being. Part of me wants to lock in some profits around $12 and let the stupidity decline but I will determine what I am going to do in a few days since the momentum on this is BEYOND amazing right now. I'll play it by ear. I expect the stock to take a "breather" before going higher into the $12, possibly $17 area.

I'll post pick #3 sometime in the next few days. I bought a few shares of this company last week and, while I am up slightly, I want to see how the EPS results cause the stock to shake out tomorrow. No matter how I slice it I want MORE shares at my original buy-in price so a 10% drop would be greatly appreciated :)
Dan Ross

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