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OTCJ: Hot China Stock: NF Energy- Making Money From Making Things Flow

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NF Energy (OTC BB: NFES): Making Money From Making Things Flow

Think Hot China Stock. Think infrastructure in China -water, natural gas, coal. All this adds up to profits, and today's penny stock idea, which I believe will rapidly grow out of the penny stock market and to the next level, is making gobs of money in this arena.

Here's the facts- Universal Travel (AMEX: UTA)- I showed it to you over the weekend at $8, has appreciated to $11.20 from $2 in the last two months. A China story, making money, beaten down in the bear market, and forgotten. An orphan situation. UTA is now trading at about 10x this year's earnings, and looking like it's headed for $20. Investors woke up.

If NFES can follow suit, it's headed for $2 in short order (more than a double on your money), and has more upside as it grows. Let's talk hard numbers. Here's a look at the company's results in 2008 vs 2007:

  • Revenues: $15.8 million up from $10.3 million (53% growth)
  • Net income: $3.65 million up from $2 million (82% growth)
  • Earnings Per Share: $.10 up from $.06 (66% growth)
  • Cash and Receivables: $11.152 million up from $6.2 million (80% growth)
  • Long Term Debt: Zero
  • Shareholders Equity: $15.5 million up from $9.1 million (70% improvement)
Great revenue growth, great earnings growth, great margins, great EPS, and great balance sheet. There's no other way to see it.

Believe it or not, at the beginning of March, this stock was trading at the oversold, absurd level of $.10- 1x last year's earnings with 50% average growth. In short- this little super star company's stock was orphaned by the market and left for dead. Can you spell reincarnation?

As investors started to believe the worst was over and jumped into an amazing value, this stock traded up like a helium balloon on very light volume. It was completely blown out as short sighted investors raised cash at any cost, and the few who bought in early are already looking at significant profits.

It's a moving target, but as I write this edition, NFES is one of the hottest penny stocks around, and trading at 7.7x last year's earnings, which is still absurdly undervalued based on this kind of growth vs. historical norms.
 

Making Things Flow

NFES is an energy saving company. In short, they design and manufacture gigantic valves that make things flow more efficiently, and thereby save power. Their valves are used in all kinds of power generation plants- coal fired, hydro, nuclear, and wind.

This valve was manufactured for the Guodian Zhejiang Beilun Power Plant for water recovery condenser system. 

Water infrastructure plays are a huge area of focus for investors- not just in China, but world wide. China is implementing a "South to North" water conversion project that is probably the largest ever undertaken globally.

The project will bring water from China's largest river- the Yangtze, to three rivers in the north; the Yellow,Huai and Hai, whose basins are running dry. This project was conceived when Chairman Mao was still running the show.

The project will eventually bring 44.8 billion cubic feet of water from South to North each year. It won't be completed until 2050, and is expected to cost $62 billion.

NFES has already delivered orders of about $1.7 million, with many more to come over the next 30 years. Here is a picture of their water flow  control system, already designed and delivered to the project.

Also, when you think of NFES, think of energy savings. 95% of China's industrial boilers are coal fired. In general, they are about 60% efficient, vs 90% efficient world wide. NFES can retrofit coal burning plants to make them much more efficient and help them approach the 90% international average. 

In summary, NFES makes commodity type stuff move around more efficiently. To paraphrase Uber hedge fund manager Doug Kass, if you drop it on your foot, it hurts, and makes money, buy it. 

Whether it's water, wind, or coal burning, NFES helps them do it better, which is why 2009 should be another big growth year- Read on to learn more.
 

Conclusion: A Hot China Penny Stock Off and Running

NFES has been charging up the charts of late, but in my view the party is just getting started- why? It's simple- the numbers, and the ease with which the stock is trading up.

Let's look at the hard numbers to start with. $.10 in EPS last year. That's audited and in the books. Done deal. 53% revenue growth rate. On historical norms, this stock should trade at PE equivalent to at least 1/2 the growth rate. That would put us at a PE of 26.5, or $2.65 per share today. On this metric, your upside is about a triple.

At last count, there's 40 million I&O- so you're less than a $40 million market cap under $1. We've looked at 2008- let's look at 2009. Q1 was a little weaker- the company only delivered $.01 in EPS vs $.02 a year ago. Like nearly all companies, Q1 was slow as a reaction to the cataclysmic Q4 '08. However, let's look at what they've disclosed for the remainder of the year.

NFES has publicly stated it has a record backlog for 2009. Click Here to read the press release. In hand, NFES has 47 signed contracts with a total value of $35.9 million US today. That's 127% above '08 annual revenues.

The company has forecasted it will deliver at least $21.5 million in 2009, thereby insuring at least 36% growth this year over last. Not bad for a worldwide recession. I've met with management at the company, and I believe the public forecast is low. They have under promised and should over deliver in my view.

Moreover, this high level of orders gives the company real visibility into 2010, which is what most analysts are considering already. NFES should deliver at least $.15 in EPS this year, and it will be back end loaded- meaning a lot will come in Q3 and Q4- this is why you want to own the stock today.

If you do the simple subtraction, you find NFES already has nearly $15 million booked in 2010. That's the starting point, with many months to pile on. The company should return to double digit growth in 2010, fueled by developing demand for wind powered technology. 

UTA is probably headed to $20 and 20x this year's EPS. IF NFES follows suit, it should be headed to somewhere in the range of $2.50 to $3 over the remainder of this year.

Under $1, gobble it up. SSL should be $.50 (this would be lower than filling the gap in the chart, which is possible). This stock has traded up quite easily on pretty light volume, so I believe this one could continue to rocket. So far, there's really no resistance on the chart. Lots of investors thought UTA would get toppy at $5, and it powered to $11.50. 

Profits are the ultimate drivers, and there's plenty in this one.

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