The global demand for steel has fallen sharply except China. Due to the crash in residential and commercial real estate, demand for steel is low. Another reason is the slump in automobile production in developed world.

China continues to show strong demand for steel due to the many public infrastructure projects under construction there. However China also is a major producer of steel as well. Overall production capacity continues to rise while demand shows no sign of revival.

F2Q09 (Qtr End 12/31/08) Earnings Call Transcript

February 10, 2009 9:00 am ET

Like many microcap traders, jumping in and out of the dozens of U.S.-traded Chinese microcaps has been my bread-and-butter over the past few years.

Until now.  Something has changed, and until I get a better sense of how severe the change is I am staying away from China stocks.  Today I sold my last positions, HQ Sustainable Maritime (HQS) and China 3C Group (CHCG.OB), even though both posted good numbers.

Last week I wrote about “Irrational Despair” causing panic in the markets. Stocks had been beaten mercilessly, regardless of the fundamentals. Maybe they were too high to begin with? Or maybe not. The point is that many stocks had declined precipitously on the back of unrelated negativity. They have since fallen further. And, as a result of the recent dramatic declines, there are amazing buying opportunities.

Let’s face it; there is plenty to be worried about. The US financial system is in turmoil. Credit markets are frozen solid and leveraged companies are justifiably panicked. However, the central banks are coming to the rescue and, while business will not return to prior levels for many years, liquidity will return to the marketplace. When it does, it will be too late; stocks will rally before things get better.

The wild ride for China Precision Steel (CPSL) stock seems to have no end. Gains of over 100% preceed losses of equal magnitude (in dollars not percentage, thankfully!) with amazing regularity. This volatility has led to many investors asking questions about the business at CPSL. These concerns are misplaced, however as throughout this rollercoaster share ride, investors seem to be overlooking one key element of the CPSL story: gross profit continues to grow with regularity.

Looking back over the last two years, CPSL has had more volatility than Lou Pinella on steroids. This volatility has come in terms of both revenue and net income, and, combined with a large retail investor base, has directly resulted in incredible share volatility. Obscured by the volatility has been steady growth in manufacturing capacity and gross profit: numbers that should translate into higher net income now that the costs associated with going public are behind the company.

In the recent Barron's article titled "Who's Minding the Minders of Chinese Accounting?", a total of 7 Chinese companies (including 4 C.O.P. companies) were singled out for having auditors that had, one way or another, raised a red flag with the PCAOB (Public Company Accounting Oversight Board). These companies were:

1) American Dairy (ADY)
2) China Precision Steel (CPSL)
3) China BAK Battery (CBAK)
4) China Clean Energy (CCGY.OB)
5) China Kangtai Cactus (CKGT.OB)
6) China Sky One Medical (CSKI.OB)
7) China Education Alliance (CEUA.OB)

Q2 2008 Earnings Call

February 19, 2008 9:00 am ET

Stocks discussed in the lightning round session of Jim Cramer’s Mad Money TV program, Friday December 7. Click on a stock ticker for more analysis:

Bullish calls:

Under Armour (UA): ‘I think UA, the longer it stays here, is getting interesting,’
VF Corp (VFC): VF Corp. is even more interesting [than UA]. North Face [brand put out by VFC] can't be stopped in this country! VFC, 52-week low, 3% yield... that's your play! But, buy, buy!’
Apple (AAPL): ‘I still like AAPL very much.’
Masimo (MASI): .’My friend, Dan Fitzpatrick... is saying it's the single best chart in the book. I don't know charts... I know the fundamentals of the business, and they are strong!’
Stryker (SYK): ‘That is a great stock. I don't care that it's near its 52-week high. I would still buy, buy, buy! Great call.’
Genentech (DNA): ‘At this level, I can't sell it anymore… I thought the Avastin decision was wrong. There were only a couple of cancer doctors on that panel…Europe uses the product. I think, ultimately, Avastin succeeds. So, down here, I am going to go with the bulls and say that DNA must be bought.’
CVS Caremark (CVS): ‘I've got CVS which also has that great back-end business - pharmacy, benefit, management.’
Rite Aid (RAD): ‘Mary Sammons may be pardoned! Yes! Rite Aid turning back. RAD had a pretty good month. It was up nicely today. And yes, I'm sticking with RAD!’
Citigroup (C): ‘If we get a new CEO in there, we're going to get something cooking... I don't want to leave that stock down here, no way, no how...’
AK Steel (AKS)
Reliance Steel (RS)
Research In Motion (RIMM)
ConocoPhillips (COP): ‘I happen to like ConocoPhillips more [than Exxon].’
Exxon(XOM): ‘Look, I'm never going to go against XOM.’

Walgreen (WAG): ‘No, no, no, no, no, no! Sell, sell, sell!’
China Precision Steel (CPSL)
E*Trade (ETFC): ‘I apologize to anyone who ever bought the stock from me, because I was consistently bagged by management’
DivX (DIVX): ‘Yeah, you know, we nailed this one when we did our IPO show, and then we took it off the table…We've lost a lot of money recommending video compression stocks ever since then… I'm not going to resurrect DIVX.’

We can all agree that China continues to grow at a rapid pace, but Chinese equities are also in the process of extending themselves into what many believe may be a bubble, and now may be a good time to consider providing some protection to your capital gains.

Since the subprime credit crises in mid August 2007, Chinese stocks have risen a dizzying 45%. These gains through out the sector can been seen by the percentage returns in the two main publicly traded Chinese ETF’s. Since mid August, the Halter USX China Index (AMEX:PGJ) has risen 55%, while the FTSE/Xinhua (NYSE:FXI) has risen a whopping 70%.

Stocks discussed in the lightning round session of Jim Cramer’s Mad Money TV program, Monday October 1. Click on a stock ticker for more analysis:

Bullish calls:

Coca-Cola (KO): ‘I've got Coca Cola hitting a 52-week high.’
PepsiCo (PEP): ‘Indra Nooyi [CEO] … she's doing a great job.’
Investools (SWIM): ‘That is a terrific situation. They taught a lot of people how to be involved in the market. I say two thumbs up to that.’
RF Micro Devices (RFMD): ‘I like the RFMD preferred [stock]... We've got a window of opportunity to own these stocks between now and January, and then we're going to skee-daddle.’
Skyworks Solutions (SWKS): ‘But I think SWKS... Now it's at $9. It's poised to go to $12, but we are getting out when the getting's good, when we get there.’
Best Buy (BBY)
T. Rowe Price (TROW): ‘Let's shoot high, that's TROW!’
Level 3 Communications (LVLT): ‘Why don't I just shoot myself, that stock's been so bad... When Jim Crow [CEO] comes on and tells me that his health is good, we are going to pull the trigger again... he's the reason why I told people to buy LVLT. I need to have him on the show...’
Bunge (BG)
Monsanto (MON)
Under Armour (UA): ‘This quarter is going to be good. We get a little cold weather and it's going to be great. Don't believe the bears. UA is the place to be!’
Aircastle (AYR): ‘Look, we got a good yield here. We're sitting in it.’
Kraft Foods (KFT)
Oracle (ORCL): ‘ORCL had an unbelievable quarter...’

Bearish calls:

Jones Soda (JSD): ‘They stunk it up bigtime, bigtime! No, he's wrong. I want you to stay away.’
Melco PBL Entertainment (MPEL): ‘No, no, no, no! Sell, sell, sell! When it comes to the casino business... They know nothing!’
China Precision Steel (CPSL): ‘Sell, sell, sell!... Boy that China market is a bubble.’
Circuit City (CC): ‘CC is in existential crisis...’
Invesco (IVZ)
Level 3 Communications (LVLT): ‘Why don't I just shoot myself, that stock's been so bad... When Jim Crow [CEO] comes on and tells me that his health is good, we are going to pull the trigger again... he's the reason why I told people to buy LVLT. I need to have him on the show...’
Tellabs (TLAB): ‘I've got to have more than just an acquisition... the fundamentals aren't good.’
Archer Daniels Midland (ADM): ‘They still don't have anybody to speak of pumping this ethanol... They need some more gas stations... ADM, no.’
Lance (LNCE)
Red Hat (RHT): ‘RHT may be your game, but don't blame me when it doesn't do anything... Don't buy, don't buy...’

As you know, all of the top Chinese stocks have been on fire. You can start with Baidu.com (BIDU) (which I featured as Stock of the Day after breaking out a few weeks ago) and go on down the list. At this point, I'd say the space is getting a bit too frothy with the smaller, more speculative names soaring to massive gains in short periods.

Case in point - China Precision Steel (CPSL), a very small China steel play in a company with highly erratic growth. It's a stock that has been in my list of #1 Longs (a new biweekly watchlist highlighting the best trading opportunities that I send to Gold and Platinum members) and was mentioned in the Telechart Live Chat room on Friday as I initiated a position at 4.64. Below is the daily chart which illustrates the tremendous move over the past 3 days with extraordinary volume.