I have been a big proponent of China and I am not alone. Recently, however, some short players have slammed China, pointing at possible bank problems and an overheated economy. Some of that may be true. But as with all booming economies, there is always a cooling-off period and China will no doubt hem and haw as it powers its economy ahead. This is a buy-in opportunity. Domestically, despite the fact that I like housing for the long run, recent data for new home sales are a concern. New home inventories have continued to shrink to the lowest level in almost 40 years. Builders who shut down high-end projects have gone back and rezoned them to fit the lower market (under $300,000) and tax breaks for first-time buyers have helped. The American homebuilder is one of the most resilient creatures and they will survive. But it's hard to compete with the glut of existing homes on the market and Wall Street is a short term thinker. As a result, I felt it was time for another update on our existing portfolio and talk about two new additions: Pulte Homes ( PHM). I first picked it last February at $10.20. Guess what? It crept back over $10. But new home sales are flat for December and the stock is taking a beating. While I think it will eventually be back, take your money off the table for a slight loss (down to $10) and sell. We will be able to buy it back cheaper soon.
General Electric ( GE). Here is another first rounder from a year ago, when I picked at $11.62. It's now $16.40. I still like it and would hold it. Huaneng Power ( HNP). My big dog of the bunch just happens to be a China stock. Picked last March at $29.34, it's down to $22.14. It looks like HNP is trying to make a double bottom at around $22. Sell if you think China will decrease its energy needs. To quote my sarcastic 9-year old son,"Really?" China Integrated Energy ( CBEH). I put this on my list last March at $4. After a secondary offering in October (which was priced down at $5.75), the stock moved up nicely over $9 this month on good volume. The recent pullback in China stocks has sapped some of its liquidity and the stock has pulled back to $6.85. CBEH has purchased another seven gas stations and I expect its current bio-diesel production capacity of 100,000 tons to double to 200,000 tons by year end. Today it announced a fuel distribution agreement that will increase sales by over 20%. I expect 2009 fourth- quarter earnings to remain strong and would expect it to raise guidance for 2010. At under $7.50 it's a buy and at under $6.50 its just plain theft. Bank of America ( BAC). When I recommended it in October at $16.50, I said I may live to regret it. How out of vogue can bank stocks get? At some point you would think they were selling cigarettes? Pay no attention to this passing political fad. Despite BAC's huge fourth- quarter loss, it's is the biggest in almost all of its businesses and it will start to generate big, big profits at some point and you will be rewarded. I'm not saying double down yet, but don't panic on this one.
QKL Stores ( QKLS). QKL Stores is the Kroger ( KR) of Northern China. I added QKLS to my list last October at $6.45. It moved up $7 and in the past week has pulled back to under $6. The November secondary was done at $5.75. If you can buy it under $6, do it. Management is tremendous and the store growth will continue at a rapid pace. How rapid? In 2007, it reported $90 million in sales. In just the first nine months of 2009, it doubled that. I expect 2009 sales to reach $250 million and profit to reach $.35 per share. With a market size of 200 million people in Northern China, expect this type of growth for years to come. Here are two new stocks to add to the portfolio. First, Shengkai Innovations ( SHE). Sometimes the most boring businesses can be the most profitable. Take SHE for example. It makes ceramic valves for commercial use. When I visited the company in February 2008, its plant looked like the old Eastern European plants I visited in the 1990's. But its products, or should I say the demand for its products, speaks for itself. Here is the pitch in a nutshell. Almost all valves in use today worldwide are metal. They rust and have to be replaced regularly. For an oil refinery that means shutting down the line, cleaning it, disassembling it and replacing it. This costs time and money. SHE has patented the ceramic value. Stronger and more durable (up to 10 times they say) and with a competitive price, the company is operating at full capacity. Its margins are a stunning 35% after taxes. The kicker here is that in order to meet demand it is completing a new state-of-the-art production plant, which is scheduled to open this summer. This will triple its capacity. SHE moved from $5 in mid-December to over $10 this month. The recent pull back in China stocks has SHE trading in the low $6 range. I would put in a buy at $6.00. (Note: I own this stock.)
Second, JP Morgan Chase ( JPM). Hindsight is 20-20, but I kick myself for not picking this stock last February. I knew it would come back. I have waited all year and it is time. It's back under $40 and I would buy at $38.50. Jamie Dimon could be one of the best CEOs in America. Pay no attention to the clamor from Washington. I got news for you: well run banks should make money.