To OTC Journal Members: 
 

We're Just Digesting

This is easy to imagine since this happened to most of us in the last two weeks. It's Thanksgiving, and you've just gorged yourself in a two hour eating marathon. If you're a good American, you are now sitting on the couch, waistline button open, remote control in hand, watching a football game and digesting what was likely your biggest single eating binge of the year.

Right now, the markets are a bit like the post Thanksgiving feast binge couch potato you see pictured here. The markets are busy digesting this year's gains, and aren't hungry for appreciation right now.

Hence, we're seeing a lot of low volume sideways trading in a number of the issues in my current followings. It's easy to get frustrated. After all, some of these companies are delivering quite dramatic corporate results to the upside- my top three must owns are great examples- CEU, CREG, and NFEC- all delivering great numbers, yet the stocks are trading kind of sideways on lighter volumes.

Consider the gains over the course of 2009 they have to digest. CEU was $1, now $6. CREG was $.34, now $2.75. NFEC was $.40, now $4. In my view, all of these companies are undervalued, but all have huge appreciation meals to digest from the 2009 feast.

Here's the thing about gorging yourself - when you fully digest the meal, and you're hungry again, you have an even bigger appetite. You want to gobble up more. 

When the market gets done digesting this year's gains and the cheap stock is slowly but surely replaced with shares owned by new shareholders at higher levels, the stocks will make their next big move to the upside. Could start later this month or early next year, but it's inevitable as long as the companies keep delivering.

Here's a couple of news items on two of my followings- the first made a huge surge and is now put us nicely in the black. More to go.
 

Tianyin Pharma (NYSE AMEX: TPI): Blow Away Forecast Has Stock Rocking

TPI rocked the middle of last week on the highest single volume day of the year, and what's even more impressive is the gains are holding. In my edition for 2010 last week, I listed it as #6, so that shows you what I know. However, I also observed the company's bottom line growth needed to keep pace with the top line growth, and that appears to be exactly what's going to happen.

On October 5th I published my first edition at $3.60 with a long term price target of $10. Today the stock is $4.60 for a net gain of 28% (John- check my math please). The stock is trading at about $.30 under the all time high for this year.

Apparently, the completion of their new manufacturing facility combined with recent approvals from the Chinese version of the FDA on several generic antibiotics has the company really feeling its oats.

TPI forecast it expects to achieve $113.3 million and net income of approximately $19.6 million for the Fiscal Year which ends June 30, 2011, representing approximately 78.1% and 73.5% growth over fiscal 2010 guidance.

To put in perspective, about $20 million in profits would equate to EPS of about $.73 fully diluted based on today's I&O shares.

In response to last week's revelations, the stock surged and traded 5 million shares in one day. This is 2.5 times the highest volume day the stock has had in its entire history.

Now, bear in mind TPI's forecast is for their fiscal 2011- that means July 1, 2010 to June 30, 2011. It will be interesting to see if they really deliver. If they do deliver, it will equate to nearly $.80 in EPS with a nearly 80% annual growth rate.

The stock is just over $4.50 today. If the company can really deliver these kinds of results, is there any doubt the stock could be $10 sometime in the next 18 months? You be the judge. 

Here's another example of a great idea that spent some time digesting its gains. This stock was $.98 early this year. When TPI was hungry again, it gorged itself with a 5 million share day and more impressively- those gains are holding. Click Here to read the TPI press release from last week. 
 

Xinhua Sports and Media (NASDAQ: XSEL): Buying Earnings and Expanding Offerings

XSEL was out with some major news at the end of last week, and I'm starting to warm up to this one again in light of what's happening. Early Friday morning XSEL came out with news of two acquisitions, and both of them appear to be immediately accretive to earnings. 

Last week, XSEL announced it has recently consummated two acquisitions which clearly explains why the company was willing to raise capital at $1.32 per share-they needed the cash to complete these acquisitions.

In two separate announcements, XSEL announced it had acquired the "China's leading sports media rights distributor"- China Sports Media. CSM brings the China Basketball Association (CBA), China Soccer League (CSL), AFC Champions League, Soccer's World Cup Qualifiers, AFC Asian Cup, Mission Hills Golf World Cup, FIFA Club World Cup, FIVB Volleyball World Championships and others to XSEL's slate of offerings. The transaction was completed in return for 5.7 million shares of stock valued at $1.80, and $5 million in cash. CSM is expected to generate $3.3 million net over the next two years.

The second acquisition was less about content and more about delivery. XSEL has also acquired NuCom Online Corporation, the largest sports related internet portal in China. The portal has over 8 million registered users and 15 million monthly unique visitors. NuCom comes with a highly valued internet broadcast license. There are only 23 non government organizations who have been able to obtain this license from SARFT (State Administration of Radio, Film and Television of China).

Last week's announcements allows XSEL to broadly expand both its sports content, and the many ways that content can be delivered to audiences to generate revenues.

The stock has started to perk up a bit as a result of these recent revelations. As you can see from the chart, the stock is trying to recover from its massive one day blow off when the financing at $1.32 was announced.

This one has turned into a long term value play. Despite revenues dropping as the comparitives reflect the company's divestitures, they are still very profitable on a cash flow basis. Now, the seeds of growth are being laid.

It took some years for ESPN to really get going. XSEL will do it in 1/3 the time to 28 times the viewing population. This was a $.37 stock back in March, so it has some digesting to do.

Someday, this one is going to wake up and start rocking again. I'm looking for some other catalytic events to get the ball rolling. It's cheap enough now to be a great buy, but not for traders yet. That day will come.