Three China Small Caps Set to Double in Six Months

Includes: BSPM, SOKF, ZSTN
by: China OTC Player

With the recent retreat of some of our Chinese small caps, certain stocks are looking very attractive once again. Just today, I loaded up on some of my favorite plays.

This is the perfect time. We are in the midst of a reporting season that is shaping up to be one that is not only very positive but has in fact not uncovered any nasty surprises. As a contrarian, I love taking advantage of the uncertainty surrounding the Yuan and China's credit market. Further, even though some of us have been in this space for a long while, judging from the actions of certain investors, Chinese small caps are garnering attention like never before.

The following are three picks that could easily return 100% in the next six months. The key metric I'm looking at is the company's PEG ratio, which is a measure of how expensive the stock is vis-a-vis its growth potential. The lower the PEG ratio, the more attractive the stock.

1) Biostar Pharmaceuticals (NASDAQ:BSPM). Biostar develops and markets drugs for a variety of diseases and conditions, with most of its revenue coming from its over-the-counter medicine for Hepatitis B.

Current Price: $4.05
52-Week Range: $3.14-$4.75
EPS: (2009) $0.45* (2010) $0.65*
P/E: (2009) 9.0x (2010) 6.2x
PEG: 0.25*
Price Objective: $7.80.

2) SOKO Fitness & Spa Group (OTC:SOKF). SOKF is a fast-growing operator of fitness centers and beauty spas in Northeastern China and suburban Beijing.

Current Price: $4.10
52-Week Range: $0.10-$4.45
EPS: (2010) 0.55* (2011) 0.98*
P/E: (2010) 7.5x (2011) 4.2x
PEG: 0.20*
Price Objective: $12.74.

3) ZST Digital Networks (NASDAQ:ZSTN). ZSTN supplies digital and optical network equipment and provides installation services to cable system operators. It is also expanding into GPS-based systems.

Current Price: $8.29
52-Week Range: $5.60-$11.90
EPS: (2009) 0.99* (2010) 1.30*
P/E: (2009) 8.4x (2010) 6.4x
PEG: 0.21*
Price Objective: $16.59.

* Based on C.O.P. fully-diluted estimates.

You won't be surprised to learn that I own all these three stocks. The combination of attractive valuation combined with excellent growth potential is not to be missed.

My Position: Long BSPM.OB, SOKF.OB, ZSTN.