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Since the beginning of 2007, many Chinese microcap stocks have sold off and some are now trading at low P/Es despite high growth rates. As these companies get bigger, their P/Es should increase (as happened with American Oriental Bioengineering, Inc. (AOB)).

The below are thinly traded on the OTCBB so use limit orders.

China Pharma Holdings (NYSEMKT:CPHI) $2.06

China Pharma expects 22 cents EPS in 2006 and at least 30% growth in 2007.

Their sales in the first nine months of 2006 increased by 92% due to new drug approvals.

With a P/E of 9 for 2006 and 7 for 2007, they are undervalued.

CPHI 1-yr chart

CPHI

Chinese Biopharmaceuticals (OTC:CHBP) $.84

Chinese Biopharmaceuticals made an acquisition in the third quarter 2006; if they had owned it all year, the EPS for the first nine months of 2006 would have been 9.5 cents. Their actual EPS was 3 cents in the third quarter and 6 cents in the nine months. I expect at least 15 cents EPS in 2007!

Their subsidiary developed 40 new drugs in the last 4 years, and they expect 30 drug approvals by 2010, including 7 in 2007.

The Chinese market for pharmaceuticals is growing at an 17% annual rate. Their organic growth exceeds that, and they want to be a consolidator in a fragmented industry by making selective acquisitions.

The stock currently trades at 84 cents.

CHBP 1-yr chart

CHBP

Skystar Bio-Pharmaceutical Co. (NASDAQ:SKBI) $1.48

Skystar Bio-Pharmaceutical makes veterinary products. They have just completed a new $10 mill. factory which will allow further rapid growth.

As the Chinese people get less poor, they eat more meat, which increases demand for veterinary products.

The company's product line consists of more than 70 state-of-the-art products with over 50 additional products in the developmental stage. One of the prominent products currently in the development stage is a feed additive and vaccine for Avian Influenza.

2006 sales are expected to have increased by about 55% and EPS before a one-time expense will be about 22 cents.

SKBI 1-yr chart
SKBI

Disclosure: Author holds positions in the above-mentioned securities.

Source: Three Microcaps For the Chinese New Year