To OTC Journal Members: 

I believe this recent sell down in China Energy Recovery (OTC BB: CGYV) is absurd, and way over done. Here's some commentary for your review. I've also put together a video/audio elearning chart for your review:

To listen to and view the chart, click on the following link, and turn on your speakers:

http://www.otcjournal.com/China-Energy-Recovery-August-17-2009/af/elearning/11/
 

An August Opportunity: An Easy Double

Seasonally, I've always felt August was the best time of year for microcap investors to be opportunistic. There's a couple of reasons. First and foremost- there's a lack of market participation in August for a very simple reason- vacations. Everyone's gone.

Secondly, August falls in front of what is seasonally the worst month of the year- September. September is the blow off month that happens before the best time of year to be in micros and in the market in general- October to March. Q4 is the best quarter of the year for many companies, and the market starts pricing it in during October.

So, when August rolls around, I'm always scouting for low volume "drift downs" on good small companies in case there are any opportunistic investors around to read and react.

In my view, and for some reason I can't fathom, the market has provided us with an easy 50% to 100% opportunity. Check out this ridiculous sell down in China Energy Recovery (CGYV), one of my long term followings.

When quarterly numbers came out last week we all learned the company was back on track. $7.5 million in revs, and $.03 EPS. Q1 was the big problem, and that's when I assumed the stock would blow off like it has now.

Last week, I wrote that I believed the company would not deliver the 100% growth rate we've become accustomed to. Here's the last 3 years: $5 million, $13 million, $23 million. Very impressive growth.

As I've written in the past, the first quarter this year was atrocious. $1.2 million in revenues and a $1.5 million loss. Again- atrocious. The big question- was this an isolated one time event, or was this a total reversal of fortune? I waited until Q2 to comment.

Q2 numbers came out last week and they demonstrated the company was right back on track. $7.5 million in revs and $.03 EPS- that's an annual revenue run rate of $30 million, or a 30% improvement over 2008 results. Since the company wasn't delivering close to it's previous lofty annual doubles, I wrote I felt the upside was limited to about 75% on your money unless their sales began to accelerate again.

I'm not sure why, but the stock has really sold off in the last two days, and now I feel there is an easy money double from these levels between now and year's end. 

If nothing else, let's be student's of history. Look at this chart. When the stock completed its waterfall decline last October in the Fall bloodbath, it traded down to just under $1, and rebounded over the course of a few trading days to $2.

Here's my estimate. First, go back to the company's 4/28 news release wherein the company disclosed it had over $30 million in backlogged orders to complete over the next 12 months.

My estimate- probably $10 million in Q3, and perhaps $12 million in Q4- that would equate to about $.12 to $.14 in EPS between now and year's end. About $.16 in the last 3 quarters of the year suggests at least $2.50 to $3 per share.

Now- thinking longer term. This is news I haven't shared, but needs to be included for those who want to think longer term. CGYV has not pulled the trigger on the start of construction for its new manufacturing facility. It's negotiating some very significant government subsidies. If successful, by this time next year CGYV will be close to opening a highly efficient new facility capable of delivering well over $100 million in annual revenues with better gross margins. By the end of 2010, you could be looking at a $5 to $10 stock.

For an audio and video look at the chart, click on this link. I believe anything under $1.20 is an easy 70% to double on your money before year's end, and possibly much sooner. 

Be opportunistic.

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