Chinese Micro-Caps to Own Now

Longwei Petroleum(LPIH.OB) is a stock trading around $1.40 with forecast 2011 earnings per share of 80 cents and a trailing 12-month EPS of 30 cents. I would argue that this is a no-brainer. I've told you about it before. James Altucher reportedly likes this one too. This company was among the 35 that made presentations at RedChip's New York Equities Conference on Oct. 1. Speaking of that conference, it offered a perfect example of what I consider to be an ignorant investor. Somebody asked, "Why are you guys growing at 30%-plus and carrying a forward P/E of around 2?" I wanted to interrupt, but I let the presenter field the question. My response would have suggested that the abundance of uninformed people like the one who asked the question offers the opportunity of a lifetime for savvier investors. It will be interesting to see if Longwei is able to uplist in the next year without having to reverse split. Hey -- it could happen. My uplisting target is Amex. I've informed my Financial Statement Analysis class that I believe this stock will see $3 by Halloween. That's a 100% return in a month.

Prim's Algorithm

People keep asking me, "How do you find these stocks?"

My stock-picking strategy is not unlike Prim's Algorithm, which I traversed in my Ph.D. Combinatorial Optimization class. In a sentence, I quickly branch out from what I know to expose myself to more of what I know that I don't know, spending as little time as possible on each activity that doesn't add value. I quickly eliminate opportunities that don't appear to be the best using basic valuation metrics. I'm one of the few people that actually believes in my ideas as opposed to just writing about ideas, because I own them all myself. After sorting through thousands of companies I stick by one guiding principle: When you can be certain that others are uncertain and that the price that you pay is less than the underlying value, buy. Thus, I own when it doesn't make sense not to.

-- Written by Glen Bradford in West Lafayette, Ind.

Disclosure: Bradford was long Oriental Paper, MystarU, and Longwei at the time of publication.

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