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Looking At Biostar; BSPM, China Recycling; CREG

Many of the smaller China stocks seemed to have lost their vigor for climbing the charts of late. Today I'm looking at my current two favorites- Biostar Pharma; BSPM, and China Recycling Energy: CREG. These are both hot China stocks that have climbed the charts significantly in the last year, but of late have been trading kind of sideways on lighter volume.

Despite but pretty torrid growth rates and strong profits, both of these stocks have been a bit anemic of late, leaning towards being range bound on lighter volumes. Different kinds of markets call for different trading strategies, and this market seems to be one where buying stocks as they pull back to their long term uptrend line makes the most sense. When they rip to the upside, ringing the cash register and locking in a few shekels of profit might be just what the doctor ordered for the health of your portfolio.

Let's start by looking at CREG- China Recycling Energy, which recently made the jump from the more obscure OTC Bulletin Board to the NASDAQ. Here's a case in point. As you can see from the chart and the blue uptrend line, this stock has been trending up since July of last year. After that many months in a solid uptrend, there's no reason why it shouldn't technically be entitled to go through a period of backing and filling.

Boutique institutional firm Garwood out of Chicago has the company delivering $80 million in revs in 2010, and $.28 in EPS- about 100% growth on the top line. This assumes no new contracts in 2010. Certainly, with their recurring revenue theme, a higher multiple can be expected. Therefore, there's no reason this stock couldn't go on to new highs above $6, and bring $7 to $8 as a possible target.

The stock surged up to the $6 mark last month shortly after the NASDAQ listing was awarded, and in 20/20 hindsight, that was a good point to shed a few shares and take a profit. 

The stock is now camped perfectly on the uptrend line. Any further significant pressure on the stock to lower levels suggests a change of character and a trend reversal. However, if it hangs at this level, and the stock turns around, this $4 to $4.25 range will end up being a great opportunity to accumulate.

Biostar Pharma; BSPM- on the Bulletin Board and trading very well, is surging right now.

BSPM recently came down to it's long term uptrend line, and bounced. The market misunderstood the Q4 numbers the company disclosed, and the "hot" money came out of the stock in a hurry. The stock dropped from $4.50 to $3.70 in three days, and then the smart money came in to take advantage of the knee jerk reaction to the numbers.

BSPM came down nearly perfectly to its longer term uptrend line, and bounced hard. Those investors who thought it was all over for this stock were dead wrong- so far. Biostar Pharma (OTC BB: BSPM) should deliver about $80 million in 2010- up 50% from '09, and could earn as much as $.55 to $.60 in EPS. Certainly worth far more than $4 per share.

I suspect BSPM is very close to being granted a NASDAQ listing. NASDAQ likes to complete the review process, and then as a final requirement wants to see the stock close above $4 bid for 5 consecutive days. In the case of BSPM, it's now been 3 consecutive days as of Tuesday's close. If the process has been completed and the stock holds up for 2 more days, we might see an announcement later this week. 

Last month, CREG traded from $4 to $5 just before it got its listing, then found its way to $6 within 3 trading days of being granted a NASDAQ listing. Therefore, if BSPM gets the same kind of treatment, I would not hesitate to take some money off the table on the associated surge and look to buy back if the stock retreats to its uptrend line.

In the case of BSPM, the stock is behaving as if the market expects it to happen.

We're not in the hottest market for small China stocks right now, so sell the rips and buy the dips. On that basis, two of my favorites are at different points in the cycle. If you see BSPM rip on a NASDAQ listing, take partial or all your profits. CREG is a buy right now with a tight stop. The rip happened last month.

I received a fair amount of critical commentary on my last edition entitled "BSPM Deflates as the Hot Money Rushes Out". I took some liberties with the English Language and turned the acronyms FASB and GAAP into verbs- stating "Biostar FASB'd and GAAP'd to Death". It was an effort to explain how the market misinterpreted BSPM's Q4 numbers by reacting to the headline. As a result of the rather draconian accounting treatment these companies are getting, the accountants made the company look as if it had lost money.

There were a few typos in the article, which was written between numerous flights and on a crazy travel schedule. BSPM closed at $3.89 that day, and is currently trading at $4.46. That's 14.6% net return in the last week. One reader commented I'd have more credibility without the errors. It seems to me 14.5% in one week is pretty credible. I'd rather make the right calls then have perfect grammar, spelling, and punctuation.

Disclosure: Yes, I own both CREG and BSPM.

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