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I was studying the Xinhua Sports and Entertainment (NASDAQ: XSEL) chart on Friday, and noticed a pattern setting up that could be very exciting for today's and future shareholders who want to make money.
On the fundamental side, this company is absurdly undervalued in my view, and this is one stock that could participate in a big way if the market scampers higher in the seasonally strong fourth quarter.
As I chronicled in my first edition on the company, XSEL used to be a bit confused about its business. Armed with nearly $1/2 billion a few years ago, XSEL went on a shopaholic media buying binge which included radio, newspaper, TV, and print. Over the last 18 months, Xinhua has been divesting itself of non core assets in to focus entirely on becoming the ESPN of China.
The divestitures are nearly complete, and a clearer picture of the company's earnings power is emerging. The Q2 numbers were eye popping, and suggest this stock has a long way to go to the upside. As the stock price appreciates, bigger and bigger players will take notice.
Consider the quarter over quarter growth. In Q1 (Jan to Mar), XSEL delivered $24 million in revenues. In Q2, XSEL delivered $38.8 million. That's a 55% improvement in just three months!!! Know any US companies growing at that rate? Amazing.
On a cash flow basis, it would appear the company made just over $5 million, but when all the GAAP accounting funny money charges were included, the company notched a very small EPS loss. Cash flow from operations is far more important the EPS in the real world.
Stocks tend to make 90% of the big moves in 10% of the time they trade, and this stock appears to be setting up for a big surge similar to the 10 day period in early August when the stock scampered from $.91 to $1.80.
Look at the first chart. The June to July slight uptrend ended up with a big blow off to the upside. $.91 To $1.81 in 10 trading days was the outcome.
Now, look at the uptrend that is now forming in the last 10 trading days. Note the similarities? Here's the question- will it resolve itself with the same huge surge at the end?
Now, let's move down to the second chart. Note the stock is starting to work higher right off a perfect 38.2% fibonacci retracement of the big 10 day surge.
There's two pretty strong technical indications this stock wants to work higher, and then explode. If we weren't looking at September just around the corner, it would be a slam dunk.
September can be a seasonally treacherous month for the markets, but the way things have been the last few years, who knows what will happen.
When one takes into account there are only 75 million I&O, this $1.55 level on Friday is only a $116 million market cap for a company that just generated $39 million in one quarter. Are you kidding me?
A phenomenal opportunity on the growth of entertainment in China. In my view, assuming no massive melt down in the markets and a continued focus on China- this is $3 to $5 by year's end. And- speaking of China- here's one more chart.
Wonder why everyone's talking about China in the financial media? It's not complicated- their economy is simply the most robust in the world today, and the growth is simply outstripping all other nations.
Why? - the growing movement from an export driven economy to a consumer driven economy, along with massive government stimulus that is working. Check out this chart provided by the people at Halter.
This chart tracks the performance of three major indexes a compared to each other over the last 12 months. In the global collapse of late 2008, the large cap stocks of China took a bigger beating than their US counterparts in both the DOW and the NASDAQ.
The world perceived a global recession would be more harmful to a Chinese economy that was largely dependent on cheaply manufactured exports, but the world underestimated Chinese economy's ability to transfer GDP growth to the largest emerging consumer class in the history of the world.
Since making the bottom in February, the DOW stocks of China have outperformed their US counterparts (blue line), and I would expect that trend to continue for some time.
You will find more robust growth in China- that's the message, and the market is starting to cast it's vote with it's money.
And- speaking of growth in China-
it's going to be a big week for NF Energy (OTC BB: NFES)
shareholders next week. Stand by for an update on Monday.
Here's a new idea that's old. On and off over the years, this stock has gone from the big house to the outhouse a number of time, but looks like it could be heading back up to the big house again.
California Microwave (NASDAQ: CAMP) has re emerged on my radar screen for the fourth time since the 90's. For starters here's an interesting nugget- the CEO has been buying gobs of stock in the open market. Insider selling is not necessarily bad, but insider buying is always a bullish sign.
These guys make the boxes for the satellite receivers for the two biggest satellite services.
A few years ago CAMP was demolished as one of the company's biggest suppliers sent them a bunch of bogus components for their receivers. It caused a total melt down at the company, and the stock retreated from it's previous lofty levels of $14 in '06 to a pathetic low of $.39 in March.
Since then, there is a lot of evidence the company's fortunes are turning. CAMP now has a much more robust portfolio of products including a foray into wireless, and sales are now rising sharply.
Here's your 5 year, long term chart as measured on a weekly basis. This will give you some idea of the upside over the coming months.
Operating positive cash flow is about $.56 per share, and the company is using the excess funds to rapidly pay down long term debt.
I've read an estimate of $.27 in EPS for FY 2010. The company just announced its first quarter of quarter sequential growth in 3 years.
Entry level- $2.25 or under. Price target: $5- This stock has been a favorite tech name of many fund managers over the years, and as the company gets up off the canvas for the umpteenth time ala Rocky, the funds will start piling back in.