Today’s Daily Alert features a new small-cap recommendation from Crisis & Opportunity Editor Christian DeHaemer.
“The Chinese auto market is moving up again after remaining flat last year. Imports are up 51%, coming off a low base. There will be 20 million cars sold in China this year, easily beating projected U.S. sales of 15.5 million and making it the largest market in the world. Growth estimates for Chinese auto sales range from 6% to 8%. Some researchers project that within three years, more cars will be sold in China than Europe, Japan and the U.S. combined. ... One way to play the growing boom in Chinese auto sales is to buy the small company China Automotive Systems, Inc. (CAAS, $6).
“China Automotive Systems is a leading supplier of power steering components and systems to China’s automotive industry. The company provides its customers with a full range of steering system parts for passenger automobiles and commercial vehicles. China Automotive Systems’ operates in China through ten Chinese-foreign joint ventures. CAAS is an undervalued Chinese small cap with a market value of just $150 million and a trailing P/E of 7.5, compared with the industry average of 21.
“Over the past year, sales have been flat. This is reflected in the stock price. But this is changing, and the stock price will grow along with earnings. For the quarter ended September 30th, the company’s sales increased to $73.2 million — an increase of 3.2% from the third quarter the year before. CAAS’s gross profit was $12.5 million, compared to $12.6 million in the third quarter of 2011. Net income fell to $4.4 million for the quarter from $11.1 million last year, and EPS was up a bit to $0.12 from $0.09 in the third quarter of 2011.
“For the first nine months of this year, China Automotive Systems’ sales were $234.5 million compared to $235.5 million for the first nine months of 2011. Gross profit was $43.5 million, falling from $45.1 million. And net income, which includes net income from discontinued operations, decreased from $30.3 million to $14.7 million. ...
“As you can tell by this chart, the stock was on fire back in 2010 before the great China slowdown. Things change. Today, the downtrend is broken, and there is the beginning of a new up-trend with higher lows and higher highs. Just today, the Wall Street Journal wrote: ‘China’s auto sales are set to grow faster in 2013 on the back of an improving economy.’ China Automotive Systems is cheap, beaten down, and set to grow again. Buy CAAS under $5.75 with a price target of $14.35. Put your stop in at $4.50 and let it ride.”
- Christian DeHaemer, Crisis & Opportunity, January 11, 2013