New Energy Systems (NEWN.OB), SinoCoking (SCOK) and Sinoclean Energy were all stocks that traded at a significant discounts to their fair value and subsequently skyrocketed. China Carbon Graphite (CHGI.OB) has the potential to be the next skyrocket stock.
In August 2009 I received an email from a New York based hedge fund manager who was holding a very large position in a small cap Chinese maker of lithium ion batteries based in Shenzhen. He was concerned that this opportunity was “too good to be true.” He told me that the stock was trading so cheaply (at $2.00 and only 2x earnings) that there could only be two conclusions. Either (a) the company was a total fraud, or (b) this was the buying opportunity of a lifetime. I arranged a meeting with management and booked a flight to Shenzhen where I toured the factory and met with the CFO, the CEO and the head of sales. As it turned out, I was very impressed by the company and by management. The factory was clean, well organized and production was humming along at a busy clip. I told the hedge fund manager my conclusions and subsequently “loaded the boat” myself, buying all the stock I could get my hands on. In subsequent months I continued to provide suggestions to management on how they could improve their capital markets profile and I introduced them to a number of other investors and investment banks who could hopefully provide research coverage in the future.