The Most Important Edition of 2010

Coming Attractions

You might recall an edition I published about a month ago suggesting it was time to step back, take a look at every idea, and set some cash aside to get past tax selling season and into December. The time has come.

I suspect December will be a good month in the markets. Small stocks have taken a back seat to large caps this Fall, but we might see rotation again very soon, which would perk up a number of my ideas. It's time to look at Q3 numbers, and look at where we can position ourselves to make a lot of money in 2010. Therefore, today's edition is the most important of 2010 as it relates to my current slate of ideas. This is just a quick overview- no technical comments. Those will come individually. This is just fundamental stuff, and the best businesses are listed first.

Here's an overview of nearly everything I've written about and covered in 2009, and what you want to own going into 2010 in order of upside- in my view.

Let's start with the big ETFs, and work our way down.

The Large Cap ETFs- Strictly Global

Here's a list of the ETF's I've had as recommended on the site throughout 2009, and some thoughts about where to from here.

• China Large Cap ETF (FXI): Recommended at $25 on 12/13/08- currently $45- net 80% return. I've had a price target of $60 on it all year, but I believe $75 is now a better number. This is the 20 largest government sponsored companies in China. A cornerstone long term holding.
• China Diversified ETF (YAO): Recommended at $25 on 10/23- currently at $26.15- net 5%- just getting started. Far more diversified with smaller growth companies than FXI. Very new. So far, not performing as well as FXI, but should pick up next year and in the coming years.
• Brazil ETF (EWZ): Recommended at $25 on 12/13/08- currently $78.92 for a net return of 216% in the last year. My original price target was $60. Very oil and commodity sensitive. Could trade sideways for a bit. Not my first choice now for new money.
• Gold ETF (GLD): Recommended at 2/3/09 at $88.47. Currently $117.36 for a 32.5% gain. GLD is absolutely going to $130 as the economy improves. Gold is the new oil (more on that statement in another edition). Will continue trending higher along with equities if the dollar continues to soften, which it will.

The Small And Microcaps

These are the stocks you want to own with your reasonable risk capital in order of upside as I see it. This is the money you want to double or triple and could lose 30% to 40% if the stock trades poorly. There's some big wins on this list, and bigger wins into 2010 and beyond. A good portfolio will contain four or five of these ideas.

In order of upside as I see it. The must owns if you like profitable, growing, and undervalued China companies are CEU, CREG, and NFEC in that order:

• China Education Alliance (CEU): Recommended on 10/14 at $5.60- currently at $6.12. 9.3% gain so far. Monster margins and profits. World class margins and profits. Only a matter of time before the market really dives into this one. Last earnings report: $10.23 million, up 43.3% over the $7.15 million the company delivered in the same quarter of '08. Now, here's the really astounding news: Net profits were $4.17 million, up 51.4% over the $2.76 million CEU delivered in Q3 '08. I believe the company could earn nearly $1 in EPS over the next 4 quarters. About $2 per share in cash and no debt. A CFA valuation analyst I had look at the company says it's worth $14.36 today based on earnings power per share. A must own for anyone looking for big returns in the market based on growth and profits.
• China Recycling Energy (OTC BB: CREG): Recommended on 10/19 at $2.40 Currently $2.75 for a net 14.5% return. Great recurring revenue model. I just read a new research report predicting $4.50 on the stock. Last quarter: For Q3, $18.4 million in revenues turned into $3.8 million in after tax profits, which equates to $.10 in EPS, or $.08 in EPS fully diluted. This suggests the company can earn $.40 on an annualized basis, which equates to a $4 stock hands down. Own it- recurring revenues growing rapidly in the form of lease payments and interest payments monthly.
• NF Energy (OTC BB: NFEC): Recommended on 6/10 at $2.07. Currently $4 for a 93% return. It was a close race for second between NFEC and CREG. CREG only won because of the recurring revenue with no cost of goods. NFEC delivered a blow out Q3. From my review: "$5.6 million was the early forecast for the top line. Delivered: a whopping $7.57 million - just 35% ahead of the early forecast from the company. Has everyone already forgotten the $44 million contract for hospital energy management the company inked back in early September? The top line exceeded last year's Q3 number by 65%- that's all. The bottom line- that's really sweet. NFEC came in with $2.18 million net, which equates to $.16 in EPS. Balance sheet- strong- 3 to 1 current assets to current liabilities. Have you considered the following? If you multiply 4x$.16- you get $.64. That's right co investors- based on NFEC's Q3 numbers, the company is on an annual run rate of $.64 in Earnings Per Share with a 65% annual growth rate!!! This is killer." Worth way more than the current price of $4, but needs an upgraded listing to really get going.
• CalAmp (NASDAQ: CAMP): Big win. Recommended at $2.16 on 8/21. Currently $3.70 for a net return of 71% on its way to $5. A satellite dish component company with massive write downs associated with defective product two years ago. Crashed and coming back in a big way.
• Xinhua Sports and Media (NASDAQ: XSEL): Recommended on 8/11 at $1.71. Currently $1.05 for a net loss of 62%. Sabotaged by what appears on the surface to be a very poor financing at a discount to the market. It killed all momentum. However, in Q3 the company delivered $39.6 million in revs, and $4.6 million net positive cash flow. Their earnings are hidden by a convertible security that creates a bigger charge if the stock goes up. The company is making $20 million a year, and transitioning into the ESPN of China. They are really earning about $.25 in EPS. Worth a lot more than $1.05, but the market really didn't like their financing. Lots of hidden value here.
• Universal Travel (NYSE: UTA): A former BB stock that has made it all the way to the big NYSE all in 2009. Recommended at $8 on 6/7. Currently $10.62 for a net gain of 33%- was a double at one point. This China based travel agency is really growing and making money, but it doesn't seem to be enough for the market right now. UTA delivered nearly $30 million in revenues for the quarter, up 49% over the same quarter a year ago. It equated to $6.6 million in pre tax profits, and $4.7 million in net after tax profits. Since there are still only 14.4 million shares I&O, the EPS was a whopping $.34- $.31 fully diluted. This suggests the company is now generating about $1.36 in annual EPS. A $1 million non cash derivative charge lowers their earnings growth, which is probably what the market didn't like. I still like it for $20 eventually.
• Tianyin Pharma (NYSE AMEX: TPI): Recommended at $3.60 on 10/5. Currently $3.62 for a break even. Great growing pharma idea for China, and pays a small cash dividend of $.10 per share. Manufactures traditional Chinese medicines, but is transitioning to Western anti biotics as well. Earnings need to accelerate along with revenues. In Q3 TPI delivered 40% top line growth- great stuff year over year. Here's why the market yawned- the company only delivered 23% increase in net profits- the top line is growing faster than the bottom line, and analysts do not love that scenario. Great long term hold, and margins should accelerate next year.
• InterClick (NASDAQ: ICLK): Recommended at $5.69 on 11/9. Currently $4.90 for a loss of 14.5%. The best growth story in online marketing today, but the stock is not going to do well in the immediate future. The company is now in registration to raise more money and for some of the founding officers to offload shares. The stock is unlikely to go anywhere until the is priced and behind. Sell today and take your loss. The company eked out its first small profit last quarter, but should do much better last year. I might pick it up again after it gets past this registration/funding process.
• Force Protection (NASDAQ: FRPT): Recommended on 7/18 at $5.20. Currently $5.19 for a break even. Laying workers off and numbers coming in weak. Sell and put the money in CEU, NFEC, or CREG.

Penny Stocks

Here's a list of the really low priced ones and the "pre profit" companies. Listed in order of what you should own. There's some real flops in here that should be sold for the tax loss if you're still holding on to them. However, #1 is a potential super star.

• Beacon Enterprises (OTC BB: BEAC): Beacon is the real deal. Recommended 11/11 at $.93. Currently$.81 for a net loss of 15%. This stock has a lot of upside. Likely going from $10 million in FY '09 to $40 to $50 million in FY '10. Losses will turn to profits. Cap structure not polluted. One seller is holding the stock down, but it's finite and eventually this one will break out.
• Cel Sci (NYSE AMEX: CVM): Recommended at $.36 on 6/13. Currently $1.23 for a net gain of 241% gain. This super hot stock for '09 has now cooled off a bit. Great long term upside, but I fear an impatient market won't allow them to develop their technology before taking down the stock. However, still trades huge volume. I suggested taking part or all of your money off the table at $1.80. Very long term investors only.
• China Energy Recovery (OTC BB: CGYV): Recommended 9/13/08 at $3.40. Currently $1.09 for a net loss of 211%. My biggest China embarrassment, and the only pre '08 market crash. Finally has the potential to start coming back as the company was willing to say the outlook for next year is a bit stronger to return to growth, and the stock is completely blown out.
• Spicy Pickle Franchising (OTC BB: SPKL): Recommended at $.69 on 9/22/07. Then went to $2 for a net gain of 190%. Now $.13 and struggling. I actually expect this company to come off the canvas in 2010, but treacherously speculative.
• Biocurex (OTC BB: BOCX): Recommended at $.07 on 9/9. Currently $.12 for a net gain of 71% gain. Going through a registration process to raise $6 million that is unpriced at this time, so likely to trade quietly until that is past.
• IX Energy (OTC BB: IXEH): Struggling and failing. Sell if you still have it for the tax loss.
• Options Media Group (OTC BB: OPMG): Struggling and failing- sell for tax loss.
• Ufood Grill (OTC BB: UFFC): Struggling, not completely failing, but not much going on. Stock is in the toilet. Sell for tax loss and move on. I personally have a boat load of money in this one.

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