My Pick Six Rationale: I started out looking for stocks with the following attributes:
1. Low PE, with an eps growth "catalyst" in the upcoming Sept. quarter.
2. Strong sales growth.
3. Improving Margins.
4. Decent OCF.
5. Non-cyclical (i.e. food, medical, etc.)
I was successful in finding three that could fit this category, and the other three had qualities that I hope will overcome some exposure to the oil, gas, and basic infrastructure markets.
ALRC: Revs come primarily from the high-end chestnut market, but they are moving into other processed food categories, including vegetable and meat products. The 2H of the year is the strongest; the company announced in its Q2 results that it expected to meet its guidance of 13-15MM in net income (0.49 - 0.56 fd eps). Stock trades at 2.25, around 4x expected earnings. Other nice qualities:
*positive OCF
*improving margins
*new contract announcement with Yum brands (10MM/yr in revs)
CYXI: Organic/nutritional food seller in China. Earned 0.06 in Q2, its seasonally second strongest quarter. Expects to earn 9 - 9.3MM over the full year, which would work out to 0.18 - 0.19 fd. Company trades at 0.52, 2.9x expected earnings. Other positives to mention:
*dilution factor decreasing. Upcoming quarter will be the first time in 3 quarters that they y/y eps comps should look much better.
*recently added a new soybean milk facility
*franchisees increasing from 1250 up to 1500 by y/e.
SRRY: Recycler in China. Had a slightly subpar quarter in Q2, but eps appeared to be depressed by a combination of one-time factors (earthquake disruptions, planned R&D increases) that may ease up in the coming 2H. Management expects to earn roughly 0.09 - 0.10 fd for the fy08. Stock trades at 0.48, 5.3x earnings. Other positives:
*recently signed a recycling contract with one of the largest computer makers in China.
*positive OCF
*drastically improved margins
*very low DSOs
These others have cyclical exposure to China. My hope is that the expansion there is ongoing, and recent production slowdown fears aren't justified. We'll see....its a bit of a crapshoot; could go either way.
CHGS: This is a supplier of specialized materials for the steel, oil, and by y/e, the solar industry. Company has a make-good provision of 13.5MM (equates to 0.56 fd) for FY08. Analysts doubt they can make that, but expectations of 0.40 - 0.44 seem plausable given the recent Q2 results of 0.10/share. Trades at 1.95, or 4x eps. Expansion into solar market will increase GMs, according to the company's expectations. Q3 eps are expected to be around 0.12/share. Improving cash flow from ops (+4.3MM through Q2); A/R collection times are improving but still very high (DSO: 175 days).
JNGW: An advertising company with some proprietary database information that should be attractive for businesses looking to sell into China. No specific guidance, but the company expected to grow sales at 50% this year, with improved margins. Company insider just announced that he is looking to start buying 100k shares over the next few months. Negative OCF and high DSOs are the worst features here.
CNEH: Oil production company that most are familiar with. Very good eps results, and cash flows (adjusted for A/P reductions.) A hedge on oil prices resuming their upward trend again if the developing nations continue their infrastructure buildout. Q3 results should be very good, given increased production levels and similar avg oil prices as in Q2. Stock has been way oversold recently, and this is also a bounceback play.
