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3 Chinese Stocks With Rebound Potential

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China XD Plastics

China XD Plastics (CXDC - Get Report) is the largest supplier of modified plastics to the burgeoning Chinese automotive industry. The company had its first full year of operations in 2007 and is on track to post more than $200 million in sales this year -- a 65% jump from 2009. Yet China XD has soured with investors recently after seeking to sell more shares to raise fresh capital. Shares fell nearly 20% in early October on that announcement and have never recovered.

Serial capital-raising has been a major negative for many Chinese companies as they don't understand U.S. investors' predilection for one-and-done capital-raising. To be fair, that capital raise has a good purpose: The company's manufacturing capacity will increase 35% in 2011. And that should propel per-share earnings from an expected 50 cents this year to more than 80 cents next year despite the recent share dilution. Shares currently trade for less than seven times projected 2011 profits.

The real catalyst for this stock will be management's announcement that cash flow can cover any future expansion plans. For now, shares appear to have found a floor and should move back into favor next year as investors once again focus on the growth dynamics of the robust Chinese auto market.

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