To OTC Journal Members: 
 

Sez McKinsey and Company

Compliments of one of the OTC Journal members, I read an interesting item from Jonathan Woetzel, the director of McKinsey's Shanghai office. Before covering his views on "Profiting from Innovation", it might be worth taking a look at just who the heck McKinsey and Company is.

I did a little research, and it turns out this organization is big enough to get its own section at Wikipedia. McKinsey and company was founded in 1926. It's the consulting firm Fortune Magazine called the "best CEO launch pad". They boast 3 of the world's 5 biggest companies as clients, about 2/3rds of the Fortune 500. McKinsey has over 7,500 consultants in 90 offices across 51 countries. 

McKinsey's Jonathan Woetzel recently authored an article entitled "Profiting from Innovation, Energy Productivity". In the article, Woetzel points out the Chinese government has a stated goal of raising energy efficiency throughout its giant nation of 20% by the end of 2010. He also states Chinese businesses have a major opportunity to carve out significant global business opportunities in energy efficiency.

McKinsey predicts energy demand in China will grow about 4.2% annually to 2020. This forecast requires energy supplies to double in that time frame. 

Woetzel also points out that same energy demand could be reduced by 40% if the right strategies are implemented. China wants to reduce its vulnerability to future energy shocks, and is acting accordingly. A fair portion of the recently announced $600 billion stimulus package is expected to go towards energy efficiency improvements and environmental clean up- Both these themes land us squarely on the door step of China Energy Recovery (OTC BB: CGYV).

As you can see from the image, most Chinese factories currently waste about 66% of the energy they consume. By installing a CGYV system, they only waste 10% of the energy used, and eliminate 90% of the polluting particulate matter escaping into China's hideously polluted atmosphere.

Export manufacturing is slowing in China- there's no doubt. However, it doesn't mean the Chinese economy is going to suffer a recession akin to the pain we are feeling in the good old USA. GDP growth in China is expected to fall in 2009- I have read estimates every where from 5% on the low end to 8% on the high end forecast GDP growth for 2009.

So, why is this considered a big problem? Two major reasons. First, China has to deal with about 25 million of its citizens moving from the farms to the cities looking for work each year. Secondly, China is still a Communist country, so one of their goals is to make sure everyone works. Economists believe China needs to crank at 7% GDP growth to support new entrants to the work force. Anything below that means the new workers won't have jobs.

2009 will be a year of redirection in China. Manufacturing for export will slow. However, this will give the Chinese a chance to catch up with their infrastructure upgrade needs. It's kind of like an NFL team having its bye week. It gives the players a chance to take a breather and get healthy before going back into their next Sunday battle.

China's $600 billion will be invested in its infrastructure, and the capital will put a lot of people to work. Unlike the US, China doesn't have to sell bonds and go into debt to finance its package. China can simply write the check. After all, the Chinese government has been raking in taxes from a 20 year economic boom without having to finance two wars and trillions in deficit spending. They can just write the check, put people to work, and start repairing their hastily built infrastructure.

In 2010 manufacturing will come back, and workers will migrate to those jobs. 

In the interim, this is very fertile ground for the continued growth of China Energy Recovery. The company has delivered over 100% top line growth for the past three years (including 2008), and 2009 is setting up to be another like year.

Consider the company is likely to deliver about $22 to $23 million in 2008, and has already inked nearly $20 million in contracts for 2009, including the largest single order in its history. Not hard to see over $40 million in 2009.

In the last 15 trading sessions, CGYV has enjoyed three big volume days in the range of 250,000 to 500,000 shares each time. Each one of those big days has been accompanied by a strong price surge.

The stock remained quiet during the Thanksgiving holiday. It's due to get some legs again. Each successive surge is taking the stock to a higher low and a higher high.

Today, there's no catalytic event to bring the volume up. More of those events are coming, which is why now is the time you want to accumulate. I believe the stock is going to $5 to $6 in the next Bull Market, and I believe the next bull will be born early next year.

Right now, it's quiet, and hard to buy. You can't get much at the current prices as the "forced liquidations" seem to have run their course. If you like this one and have a little courage and capital, pounce on it now.

To read Mr. Woetzel's article in its entirety, simply Click Here. 

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