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Tuesday, 05/22/2007 4:26:21 AM

Tuesday, May 22, 2007 4:26:21 AM

Post# of 1538
NSOM CHALLENGE:

On the lighter side, I decided to stick with early alphabet stocks. Back in PSL3, I picked two A's, two B's and two C's. The reason was that there were so many stocks to research that I couldn't take it any more by the time I got to D's. I followed that up in PSL4 with 1 A, 3 B's, 1 C and TBYH.

I decided to switch strategies a little in PSL5 and go with all six Chinese stocks since at least that was a group that I was 1) knowledgeable of and 2) could be researched in its entirety without too much trouble.

So, for PSL6, I opted to stick with the idea of all six being Chinese (Stiffler68 is the only other PSL6'er to go all Chinese), but I ALSO added the early alphabet variable. So, I ended up with 5 C's and 1 really far down the alphabet - ETLT.

This is kind of ironic since it wasn't too long ago that I posted about the very idea of Chinese stocks that start with "C" and how that was probably a bad sign. See C-Note below.

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It is probably no surprise that I would pick my stocks in PSL the same way I would invest in real life. I'm going 100% with Chinese stocks unless and until something changes in the Chinese economy. But, that is only half of the equation. The other half is that the universe of stocks I pick are VMC stocks. To date, I have not picked a Wild Card. In fact, since we offered WC's in PSL3, only 6 people have picked exclusively non WC's in all four PSLs. Along with myself, SSK, Wade, Stan, Digi and Networm. I can virtually guarantee that I will NEVER pick a WC because I don't agree with the father of this challenge in that I'm confident that WC's are more bad than good. There is no evidence to suggest that you are better off on an average basis or in your attempt to win the contest by including a WC. At least that is my story and I can't imagine not sticking to it.

So, I pick from a group of Chinese VMC stocks - all of those in my ChVMC07 or those I have been made aware of since January 1st. My six picks in PSL5 were exclusively from ChVMC06, so I'm just continuing the pattern.

Once I have the group of stocks to pick from I'm primarily looking at two things - CHEAP and CHEAP - meaning cheap on a PE basis and cheap on a chart basis. I'm looking for stocks that are at lows. I don't chase. Now, it may well be that 3.5 months is not enough time to wait out a stock. If so, I will just pick it the next PSL because that just means it is closer to the day when it will break out. I have duplicated between 1 and 3 picks from one PSL to the next since PSL2.

There were 12 stocks that would have been ok to pick. The other six that I did not pick were also early alphabetters: ADY, BBCZ, CBAK, CGRH, CHME, CIWT. That will be my PSL6 "Bench". I'll be interested to see where they end up at the end.

Here are my six picks.

CKGT: I'll begin with this stock since it is somewhat controversial today. I expect to own it for the entire contest, but then I don't tend to trade a lot. I didn't trade any of my six China picks in PSL5. Of course, that could change.

I picked CKGT because it was a finalist stock and I was pretty sure that I had a high probability of capitalizing on an oversold condition on Friday. Of course, that is only a short-term pop and it may not hold, but I figured it was one more reason to pick it. However, even apart from that, CKGT has/had a PE of about 4; the chart hit a 52 week low just a few days ago and its products are health related.

CAGC: This stock is not at a 52 week low, but has a history of big spikes. I fully expect there to be one or more during the next 3 months. Who doesn't love a company that helps in the production of food in China?????? Plus, the PE is about 9; it has lots of cash and no long term debt. The quarter reported on Friday was a 50% increase in revenues over the year before and a 100% increase in earnings.

CEDA: This stock is not at a low, but appears to be building from a recent sell-off. It has proven it can trade at considerably higher prices. Nothing of substance has changed in the story IMO from when it did. The PE is about 6 based on the last quarter. Even based on 2006, the PE is only about 10. But, revenue and income both doubled from the Q1 of 2006. Education in China isn't sexy, but it is likely to be a huge growth industry. Besides all that, Bobwins likes it. http://www.investorshub.com/boards/read_msg.asp?Message_id=19681578&txt2find=ceda

CDGT: This company is involved in media development and growth in China. Like most services in China, this looks to have unlimited growth potential. The chart is a thing of beauty to me - at a mulit-year low, but appears to have found a bottom. The PE is only about 4, however the most recent quarter was less than stellar. Nevertheless, that probably explains the chart and hopefully, the bad news has been discounted.

CHNR: This stock went from $4 to $22 in early 2006 in a matter of a week and a half! That's spikeriffic and it could happen again. It is now back down to $7 and could easily spike up to $10 or more during PSL6. This is the BWLRF of China as they are primarily a zinc producer. Unless something changes in China, they are extremely well positioned for growth. The float is only 1.4M and the short ratio is a whopping 14%. So, a short squeeze is imminent. It's just a matter of time. With a PE of 9, this is a good investment.

ETLT: This stock is not at a 52 week low, but it is 40% below where it was 3 months ago. That's a good buy point IMO. It is also cheap at about a 5 PE with tons of cash and little debt. I almost don't care what they do, but it has something to do with feeding 1.5 Billion Chinese. Good enough.

FINAL THOUGHT: Chinese stocks are risky (see CESV), but they also have huge upside potential. Proceed at your own risk-tolerance level. I own a number of other China stocks, but of the six stocks above, I own CEDA and ETLT.

Len

C-NOTE:

http://www.investorshub.com/boards/read_msg.asp?Message_id=18765800&txt2find=len

ONE VERY INTERESTING ITEM FROM THIS LIST IS THE FIRST LETTER. There are 19 Chinese stocks in the ChVMC07 that do NOT begin with "C". The average return to date on those is +92%. There are 15 stocks that DO begin with "C". The average return for those stocks is -9%! Is that a large enough sample to draw any conclusions. Perhaps not IF it were just an arbitrary letter. But, the letter "C" clearly indicates "China". Now, if you were a questionable company and simply trying to capitalize on the "China" craze, wouldn't you name your company "China ......"? I think so. On the other hand, if you were a legitimate company and you believed that you would succeed based on the fundamentals, wouldn't you name your company based upon the product(s) that you dealt with - like most companies? I think so. You can draw your own conclusions, but I think it is reasonable to seriously consider being less quick to jump on "C" China companies in the future than those without it. Also, keep in mind, the two companies I brought earlier as examples that are not in this list are CESV (-100%) and AOB (+several hundred percent). Just more evidence.



Warren Buffet: 5 minutes and 17 seconds of pure, unadulterated, bulletproof, flawless logic.
http://www.youtube.com/watch?v=QLD0p1QpcI8

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