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Welcome to Profit Confidential • Monday, May 21, 2012

Bargain Stock Hunting

Thursday, February 7th, 2008
By Mitchell Clark, B.Comm. for Profit Confidential

It’s nice to have something else to worry about other than recession and falling stock prices. I’m pleased that it’s fourth-quarter earnings season and that there are some real bargains developing out there.

One company that I find particularly attractive in this market is Wonder Auto Technology, Inc. (NASDAQ/WATG). Based in Jinzhou City, Liaoning, China, Wonder Auto Technology operates through a number of subsidiaries that design and manufacture automotive electrical parts and suspension components. In 2006, the company ranked second in sales of automotive alternators and starters in the Chinese market.

The company currently sells five different series and over 150 models of alternators, 70 models of starters and various suspension-related parts, supplying a number of automakers, engine producers and auto parts suppliers in China and abroad. Some of the company’s customers include Beijing Hyundai Motor Company, Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd., Harbin Dongan Automotive Engine Manufacturing Co., Ltd., and Tianjin FAW Xiali Automotive Co., Ltd.

Wonder Auto Technology recently opened an office in Detroit and hired a former executive from Delphi. I think this is the beginning of a plan to begin penetrating the North American market for these automotive products. The fact of the matter is that no company can compete with one that makes these components in China. The North American auto market is the last bastion of enterprise that Chinese companies haven’t yet gotten to.

In the fourth quarter of 2007, the company’s revenues grew 55% to almost thirty million dollars, up from just over nineteen million dollars in the same quarter last year.

Gross profit was $7.5 million, representing an increase of 93%. Gross margin was 25.4% of sales, as compared to 20.5% for the same period in 2006. I always like to see a company that’s growing its sales and its gross margin.

Net income for the latest quarter was $4.3 million, representing an increase of some 82% over the comparable quarter.

For 2008, Wonder Auto Technology is targeting its sales to grow to over one hundred and forty million dollars, with net income estimated to be over twenty million dollars. You get all this and you get it for a price of less than 20 times earnings.

It’s going to be quite some time before Chinese stocks roar once again. When they do, however, fortunes will likely be made.

 

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Profit Confidential AuthorMitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.

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