Top China Coal Stocks to Buy Now

Sino Clean

To find a stock with muti-bagger potential in the coal space, one needs to look at Sino Clean Energy. The company produces coal water mixture -- a viscous, heavy-liquid fuel that is produced by mixing ground coal, water and chemical additives. CWM can be stored, pumped and burned as a substitute for oil and gas in modified furnaces or boilers.

The valuation of Sino Clean is compelling, trading at only 2 times operating cash flow for a company with virtually no long-term debt. The company recently provided earnings guidance for 2010 projecting $10 in earnings. This puts the company at a valuation of only 4 times projected earnings.

Gross margins are nearly 40% and the company has been growing revenue by double digits. In addition, the company just began production at a new 200,000 ton facility, bringing total capacity to more than 850,000 tons.

The stock sold off after last quarter's results, when SCLX posted what appeared to be a loss. However, as can be seen from the cash flow statement, this "loss" was only due to a non-cash charge related to warrants. In fact, the company generated more than $5 million in cash for the last nine months.

A few noteworthy items give me a feeling of deja vu with Sino Clean, where I see the company proceeding on the well trodden Chinese path of reverse splitting the stock and uplisting to the Nasdaq or Amex. First, two weeks ago the company hired an exceptionally qualified English speaking, U.S. educated, GAAP-trained CFO named Wendy Fu.