Seeking Alpha

Jim Trippon's  Instablog

Jim Trippon
Send Message
Jim Trippon is an Amazon.com bestselling business and finance author, a practicing CPA, and a fee based investment advisor. His portfolio of companies includes J.M. Trippon & Company CPA, Trippon Wealth Management & Trippon Financial Publishing. Jim has dedicated his business career to... More
My company:
Trippon Financial Research, Inc.
My blog:
Global Profit$ Alert
My book:
Stay Rich Forever: Retirement Planning Secrets of Millionaires and How They Can Work For You!
  • Big Gains in a Bad Market. China, of Course 0 comments
    Jun 27, 2011 8:52 AM | about stocks: CAAS
    Wow! When a stock jumps 15.58 percent in a single day you do have to pay attention. What made it happen? Is it part of a trend?

    The stock that blew away the competition in a dismal market last week was China Automotive Systems (NASDAQ:CAAS). Shares of CAAS have been in a sickening slide since the beginning of the year. That was when Beijing removed the last subsidies on new car purchases.

    china stocks,china investment,chinese economy,chinese stocks,china economy,china stock,china stock digest,global profits alert,jim trippon

    Surprisingly, it wasn't an earnings report that moved CAAS shares this time. It was a flurry of media reports that China was considering revising or removing license plate quota regulations. Those quotas have contributed to slumping car sales and they've loomed large over sagging automotive stocks.

    Because of severe traffic congestion, the city of Beijing imposed a quota last year on the number of license plates handed out each month. Beijing now offers only 20,000 new license plates each month, and awards them out through a lottery.

    Beijing's draconian quota has dented car sales in the capital severely. It has also generated rumors that more license plate quotas would be imposed in other congested cities like Shenzhen and Guangzhou. This fear of a spreading government crackdown on car ownership has created a major drag on automotive shares.

    CAAS is a good case in point. The company beat expectations with its earnings report in April but shares couldn't sustain their gains.

    The auto parts maker reported that for the quarter ending December 31, revenues grew 20% to $100.5 million, exceeding analyst estimates of roughly $90 million. For all of 2010, the company's sales rose 35.3% to $345.9 million. The company said at the time that it expects revenues to grow 20% in 2011.

    With numbers like that CAAS appears to be a stock that's ready to pop. It has a forward P/E multiple of only 7.00 and a PEG which registers at a dirt cheap 0.42.

    There are a lot of positives about China Automotive Systems and the stock seems to get cheaper and cheaper as earnings rise. But I wouldn't bet on it just yet.

    The Chinese reports of an end to the license lottery system haven't been confirmed. A retraction would be a severe setback.

    The other factor weighing down on Chinese automotive stocks is an industry-wide slump in sales. China's auto sales sagged in May for the second straight month, losing 8.7 percent from the year before. For the year to date, sales of passenger cars gained only 6 percent, far short of the 55 percent jump during the same period last year.

    Two more reasons are cited for weak auto sales in China: oil prices which were still rising in May, and supply disruptions caused by the Japanese earthquake.

    China is still the world's largest automobile market with sales topping 18 million units last year. What's more, growing the industry is important to Beijing's goal of enhancing domestic consumption and spurring innovation. Government action to revive the industry seems inevitable.

    Currently there aren't many Chinese auto companies available to western investors. CAAS appears to be the best buy. But caution is key in today's ugly market environment.

    CAAS wasn't able to sustain its gains after a good earnings report. So there's little reason now to hope for a surge in the stock despite good valuation and many analyst "buy" recommendations.

    The potential is there. But China's auto industry needs to see a major turnaround before I buy into the CAAS share price jump as a trend rather than a short-term diversion.


    Click HERE to know more about the China Stock Digest: China Stock Market Research & China Stock Analysis
    They All Scoffed When I Told Them I Was Investing In China. But When I Made 48%...

    Lots of other investment advisors assured me that the China stock market was the next bubble ready to burst.

    I thought otherwise, and gifted my subscribers to a nice 48% return over the past three years, in the most challenging markets since the Great Depression.

    I see no end in sight for this amazing growth story.

    To see how you can join the party, click HERE!


    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com.

Back To Jim Trippon's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.