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Top 50 Most Undervalued Companies for 2010 (Part 3)

Editor's note. This is the third part of a series. Here is Part 1 and Part 2.

By Zack Buckley and Glen Bradford

China Medicine (CHME.OB) is trading at an adjusted price-to-earnings ratio of 7. It recently took a big hit after the release of its 10-K, which allows investors to pick up shares of a great company on the cheap. China Medicine generated $17 million in 2009, and is only a $65 million company. China Medicine is waiting on government approval of its proprietary drug rADTZ which should substantially contribute to future revenue growth.

Yongye International (YONG) continues raising revenue guidance, with 2010 net income expected to increase between 60% to 72%, and has issued the expectation of 50% compounded annual revenue growth over the next three years. Its recent count of branded stores is 10,000, with the goal at year-end to be 20,000. There are discussions that by the end of the decade Yongye may have 100,000 branded stores.

New Energy Systems (NEWN.OB) has been reaffirming guidance at between $5.3 to $6 million. Since it has reaffirmed this number on three separate occasions we can assume it will be close to accurate. The company projects 2010 per-share earnings of 1.23, which makes a low P/E of only 6.1 times earnings, even though this incorporates a tripling of net income. With return on equity of 60% and profit margins at 26%, this company has high returns on capital and strong margins. Average return on equity in American business is 12% -- anything above 20% is spectacular.

Orient Paper (ONP) is a rapidly growing company with a P/E of 8 in a great industry. It makes paper, it is very simple and understandable which we love. Orient Paper achieved a return on equity of 22%. It expects adjusted EPS of $1.21, which is about 16% growth for 2010.

China Ceramics (CCLTF) is one of those companies that makes you proud. Take a look at its super 8-K issued last November and if you're perceptive you'll realize how truly innovative the company's structuring is. I firmly believe that more companies should go public in this manner. Basically, if the company performs, they get over $100 million through its warrants being cashed in; the warrants trade as CCLWF.

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