It is certainly exciting to watch a stock like Baidu (BIDU) trade every day. The volatility is wild; the stock regularly moves 5% to 7% in either direction on a given day, which makes it great to trade.

However, for the individual investor, Baidu is much tougher to handle. Sure, its year-over-year growth is more than 100%, but it also trades at roughly at 65 times earnings.

Liquidity seems to be flowing back into Chinese stocks, sending a select group higher. Last week, shares of Fuwei Films ( FFHL) surged some 100% on no fundamental news.

What has confused me about Chinese stocks is why, in general, there seems to be a divergence in valuations between these and U.S. stocks. Lots of China-based stocks have tons of cash on their balance sheet and hardly any debt.

So, in an effort to catch the next rally in this sector, I set up the Chinese Rocket Stocks Part IV portfolio on Stockpickr.

I tried to focus on stocks that have good balance sheets, strong growth and potential for a huge rally.

Here are two of the stocks I found.

First is Asialnfo Holdings ( ASIA). This stock fits all the criteria and more. Asialnfo provides telecom software solutions and IT security products and services. Basically, its main business comes from its firewall and virtual-private networking security for small and medium-sized companies. The company has $160 million in cash, zero debt and quarterly earnings growth of more than 200% year over year.

Next up is KongZhong ( KONG), which develops, markets and distributes consumer wireless services. KongZhong is currently trading at a huge discount and has been for some time. With a market cap of $200 million and total cash on the balance sheet of $120 million and no debt, Kong is trading at insanely low valuations. Back in September, the stock was up 80% in a single day.

Other stocks that made the list are China Finance Online ( JRJC), which has $65 million in cash and zero debt, Aluminum Corp of China ( ACH) and Longtop Financial Technologies ( LFT). Check out these and more at the Chinese Rocket Stocks Part IV portfolio on Stockpickr.

  • In July, I compiled the first Chinese Rocket Stocks. Here's the column and the portfolio.
  • In August, I compiled Chinese Rocket Stocks Part II. Here's the column and the portfolio.
  • In September, I compiled the Chinese Rocket Stocks Part III. Here's the column and the portfolio.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Asialnfo Holdings, China Finance Online, Fuwei Films and KongZhong to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for The Financial Times and the author of Trade Like a Hedge Fund, Trade Like Warren Buffett and SuperCa$h. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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