This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Three 'Probe-Proof' China Stocks for 2011

Investing in SBAY has largely been a painful experience. Despite a seemingly insatiable appetite in 2010 for online-related China IPO's by U.S. investors, shares of SBAY have languished and in fourth-quarter 2010 fell from a price of over $12.00 to a low of $5.99. Trading the stock is particularly difficult.

In December, when the price of SBAY was around $7.45, I noticed that the bid was only $7.30, while the ask was as high as $7.70. This represents incredible illiquidity for a Nasdaq-traded stock and a single trade of only 100 shares can make the stock appear to have moved up by several percent or down by several percent when it is really just a single small trade moving the stock.

On December 20, the stock reached an intraday low of $5.99 despite the fact that the company had already re-affirmed 2011 guidance of $3.69 per share. This represents a forward PE of 1.62. On December 23, the company released earnings that disclosed a net loss for the year, yet the stock rose by as much as 45% during the day on 15-20 times average volume, closing the day up 43%. It was a huge move on huge volume, despite the announcement of a net loss.

I believe a significant part of the move was driven by SBAY's announcement that going forward, it would be using PWC as its auditor. I believe that auditor upgrades will be a key driver of select stock prices in 2011.

SBAY now trades at $9.20 (prices are as of Dec. 23), volume was huge and the bid asked tightened to just a few cents. The stock trades at only 2.5 times 2011 projected earnings. When the stock moves, it moves big. However, it is one that can also be very frustrating. From these levels, and given the low valuation, the stock could easily double in 2011. The concerns I need to address before buying include:

  • Getting a better understanding of the 2010 net loss and getting comfortable that it won't be repeated (i.e., will the company be able to meet 2011 guidance)

  • Identifying the catalysts that will make investors jump on board (including getting a better understanding of the company's efforts to get its story out to Wall St)

  • Getting past dilution concerns, particularly given the substantial dilution in 2010.

China Media Express

Another thing I try to avoid (but which I am doing right now) is writing about stocks that are too "in fashion," and which everyone else seems to already be focusing on. CCME is very much in fashion by the longs. I have received recommendations on this stock via tweets, emails, phone calls and in person. The company provides TV advertising on inter-city buses in China, basically bombarding a captive audience with ads.

2 of 6

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,982.59 +22.02 0.13%
S&P 500 1,978.91 +0.57 0.03%
NASDAQ 4,444.9090 -4.6550 -0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs