The November secondary was done at $5.75. If you can buy it under $6, do it. Management is tremendous and the store growth will continue at a rapid pace. How rapid? In 2007, it reported $90 million in sales. In just the first nine months of 2009, it doubled that. I expect 2009 sales to reach $250 million and profit to reach $.35 per share. With a market size of 200 million people in Northern China, expect this type of growth for years to come.
Here are two new stocks to add to the portfolio. First, Shengkai Innovations (SHE). Sometimes the most boring businesses can be the most profitable. Take SHE for example. It makes ceramic valves for commercial use. When I visited the company in February 2008, its plant looked like the old Eastern European plants I visited in the 1990's. But its products, or should I say the demand for its products, speaks for itself.
Here is the pitch in a nutshell. Almost all valves in use today worldwide are metal. They rust and have to be replaced regularly. For an oil refinery that means shutting down the line, cleaning it, disassembling it and replacing it. This costs time and money. SHE has patented the ceramic value.Stronger and more durable (up to 10 times they say) and with a competitive price, the company is operating at full capacity. Its margins are a stunning 35% after taxes. The kicker here is that in order to meet demand it is completing a new state-of-the-art production plant, which is scheduled to open this summer. This will triple its capacity. SHE moved from $5 in mid-December to over $10 this month. The recent pull back in China stocks has SHE trading in the low $6 range. I would put in a buy at $6.00. (Note: I own this stock.)
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