China Growth Stocks

[Brennus]

Great news for CHGS!! Times two!

Great news NUMBER ONE:

First Solar is going to build a huge solar array in Inner Mongolia.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aHkwySMQijs0
Here's the key observation:

" “China is suggesting the solar market will be up to 20,000 megawatts by 2020, but the scale of this project suggests these estimates are far too conservative.”"

CHGS are just now ramping up their precision abrasives production. Precision abrasives will be their highest ASP, highest margin product. One of the primary markets for this product is the solar industry. To the extent that domestic use of solar is targeted to increase, CHGS will be a major beneficiary.

A classic case of correct place, correct time. It's not clear is CHGS are lucky or good, but the profit line won't know the difference.

Great news NUMBER TWO:

http://www.bloomberg.com/apps/news?pid=20601089&sid=aqqspSwPwMRo

Based on recent economic data Chinese GDP estimates are being revised up to 9.5%. Get it? They were scraping along at 5% to 6% in 1h09 and now they're chugging a long at 9.5%. That means 2h09 is going to be smoking.

"GM, the biggest overseas automaker in China, says the nation’s vehicle sales may reach 12 million, surpassing the U.S. as the world’s No. 1 market."

China is the largest car market in the world right now. In fact, even with cash for clunkers, it's not even close.

"Industrial production, due for release on Sept. 11, rose at an 11.8 percent annual rate in August, after a 10.8 percent increase in July, according to the median of 15 estimates in a Bloomberg survey."

All that means steel production and that is CHGS major product lines. CHGS make & install refractories...the protective lining inside furnaces that melt metals and the massive ladels that pour molten metal. Refractories are a consumable...the more metal you melt & pour, the more refractory material gets consumed.

Here is what CHGS guided for 2h09:

Refractory revenue: 23MM
Proppant revenue: 7.8MM
Abrasives revenue: 10.2MM

That's just for 2h09, mind you...not full year numbers. If you apply conservative margins for each of those product lines, that works out to FDEPS of around 33 cents per share. And that's without their abrasives manufacturing line ramped to full capacity for the half year.

And my guess is the economy in China is turning out a lot better than CHGS expected.

Basically, CHGS is trading right at a 2 PE. Oh, ho-hum. ANOTHER 2 PE stock? Yeah, another one...