Harbin Electric: Two Catalysts for Action


By Paul Goodwin

With blood on the tracks today, it’s hard to find a lot of attractive setups for new buying. But there’s one Chinese company that I’ve had my eye on for a long time, waiting for the chart to settle into a buyable situation. That may just have happened.

Harbin Electric (NASDAQ:HRBN) is a maker of electric motors, including rotary, linear and specialty micro-motors. Ninety percent of sales are within China, and revenues have increased by 85% annually for two years in a row. Earnings growth reached triple digits in three out of the last four quarters and the company has virtually no debt. The P/E ratio is an attractive 7.

Those are very good numbers, and the company’s earnings have grown each of the past six years. But the really intriguing aspect of Harbin Electric is its chart. The stock shared in the big 2009 recovery, but topped at 26 in March 2010, and has been trading in a range since October 2009. HRBN corrected to 15 in November, then inched its way back to near 20 in January. Since then, it has traded very tightly, with support at 18. This means it has ignored the overall volatility of most Chinese stocks and resisted the recent downtrend.

There are two possible catalysts for action in the near future. First, there is an outstanding offer from a private equity firm to buy up the outstanding shares at $24, which is a significant premium to the current price. This proposal is under consideration by Harbin Electric’s board.

The second catalyst is the company’s Q4 earnings report, which will be announced after the close on March 16. Given the company’s stability over the years, it’s likely that the results will meet expectations.

I don’t ever advise buying a full position in a stock ahead of earnings. But HRBN is a solid investment in a stormy market, and positive news on either the buyout or earnings could produce good results.