Long Term Profitability For China 3C Group, Basic Earth Science Systems

Friday morning I decided to take profits and sell half of my position in China 3C Group (CHCG.OB) at $7.98 as the stock surged on the news of a supply and distribution agreement with Best Buy. The stock is up 46% since my buy on May 29th, and is obviously more richly valued at present than it was at my purchase price. That being said, I still don’t see CHCG as an overvalued stock, as the company is trading at 16x guidance for 2007. The company continues to execute on its strategy and is looking to move up to a higher exchange in the near future, and I believe that the current valuation still affords plenty of room for the stock to move higher. Therefore, I am maintaining a position despite the surge in the stock price, and I believe that longer term CHCG has the potential for double digits.

CHCG 1-yr chart

I have taken the funds from CHCG transaction and rotated them into Basic Earth Science Systems (BSIC.OB), effectively tripling my position at a price of $1.40. For those new to the stock, please see my previous article for a detailed discussion of BSIC. I continue to believe that BSIC is sporting a rock bottom valuation and the company continues to expand production, pursue exploration opportunities, and generate solid cash flow. With oil prices showing unexpected strength so far this year, I expect BSIC to report very solid results over the near term. In addition, the Annual Report (which should be coming in July) will give investors a better idea of the company’s total proven reserves, and I believe we will see BSIC replace most of their production for the year.

BSIC 1-yr chart