China 3C Group: Compelling Valuation, Recent Selling Overdone

| About: China 3C (CHCG-OLD)

I’ve taken the weekend to do a substantial bit of research, and although I’m by no means finished, I’ve come up with some new ideas. I’ve also taken a hard look at my current portfolio and realize that there is some room for rearranging, so this morning I’ve decided to pare a few holdings and free up some cash to bring in some new holdings. I’ve summarized my decisions below.

I sold Globescape (GSCP.OB) at $2.75–I still believe this stock is going to $3, but it is clear that for the time being the stock has stalled, and I fail to see any catalyst to give it a boost over the near term. Therefore, I decided to take what has been an excellent short term profit (22% in two weeks) and rotate the money into new areas.

GSCP 1-yr chart


I sold Arts-Way Manufacturing Co. (NASDAQ:ARTW) at $9.52. I may have left some money on the table here as well, but this was also a very nice gain in a very short amount of time (11% in one week). I’m happy to book it and move into cheaper plays.

ARTW 1-yr chart


Both of these moves were mostly about freeing up capital to take on a few new holdings. I spent quite a while running screens and researching over the long weekend, and I’ve come up with a number of new ideas which I am continuing to research at the moment.

I’ve also decided this morning to enter a moderate position in China 3C Group (OTC:CHCG-OLD). I’ve been following CHCG on the way down as it has recently pulled back from the $7’s in the past few weeks, and the price has now reached a point to make it a very compelling value proposition. Given the company’s strong balance sheet ($9 mill in cash and no debt), 2007 guidance of 50-54 cents per diluted share, and history of strong top and bottom line growth over the last 2 years, this company looks to be very cheap. As well, CHCG expects to be listed on a major exchange by the end of 2007. If they can get that accomplished and manage to meet their 2007 guidance, this could easily be a $10 stock. I’ve picked up a moderate position at $5.46, and I believe the recent selling has been far overdone due to broader fears about China.

CHCG 1-yr chart