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China Stocks to Bet on Consumers - Part 2

Stocks in this article: SPU CCSC CNGL

The expansion will result in a 40% increase in capacity, primarily in the higher-margin products. The company hopes to complete it in time for the peak season in 2011. As a result, I am expecting that 2011 financial results will show very substantial growth over 2010, which itself was a record year for the company, according to already released guidance. Based on already released guidance, net income in 2010 grew by more than 50% from 2009. Based on the capacity expansion, it should grow by up to 40% in 2011. This would give SkyPeople a forward P/E of only 3 or 4.

The stock's 52-week high was $8.10, but I believe the stock could easily break through this during 2011 once full-year 2010 results are released and the capacity expansion begins to produce results.

In addition, the company is currently planning to act as a sponsor at the China investor conferences of Roth Capital and Rodman & Renshaw by providing thousands of bottles of juice for investors to drink between meetings. This struck me as a very novel way for the company to put itself on the map with investors and maximize attendance at its company presentations.

The near-term catalysts for the stock price will be the release of full-year 2010 results, which I expect to meet or beat guidance, as well as the company's sponsorship and presentations at the upcoming China conferences.

All of these catalysts will happen in March, so I expect it will not take long to see a significant jump in the share price. The first barrier I am watching for it to break is the old high of $8.10. Once it does this, I think the stock has the potential to be in the $10-12 range in 2011. This share price estimate is slightly lower than existing Wall Street estimates, which put a target price of $13 on SkyPeople. I view $13 as being slightly high based on my visit to the company and its current business prospects.

At the time of publication, Pearson was long SPU.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Rick Pearson is a Beijing-based private investor focusing on U.S.-listed China small-cap stocks. Until 2005, Pearson was a director at Deutsche Bank, spending nine years in equity capital markets in New York, Hong Kong and London. Previously, he spent time working in venture capital in Beijing. Mr. Pearson graduated magna cum laude with a degree in finance from the University of Southern California and studied Mandarin for six years. He has frequently lived, worked and traveled in China since 1992.

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