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Welcome to Profit Confidential • Tuesday, May 22, 2012

This Profitable Stock Cheap Right Now

Wednesday, November 28th, 2007
By Mitchell Clark, B.Comm. for Profit Confidential

It’s tough to be a buyer in this market when prevailing market sentiment is so negative.

No one ever knows when a trend in stock prices might reverse. I know that we’re due for some upside trading action in stocks, even if it is only a technical move higher within the current downtrend. In any event, there’s so much uncertainty out there, only the Federal Reserve has the power to make investors feel better about the market.

The next Fed meeting can’t come soon enough.

 I recently came across another very interesting Chinese company that’s in the business of selling chemicals. Still small and at an early stage of development, this company trades on the NASDAQ and is very reasonably priced.

Based in Taian City, Shandong Province, China, Shengdatech, Inc. (NASDAQ/SDTH) is a small company that manufactures what is known as “nano precipitated calcium carbonate” (NPCC). This product is commonly described as a chemical “filler” that is used to enhance the properties of other materials. According to the company, NPCC refers to an ultra-fine, precipitated calcium carbonate that has an average particle diameter of less than 100 nanometers, and is used as an additive in various products.

Because of its special physical and chemical properties, NPCC has been widely applied in the paint, paper, plastic and rubber industries. According to the company, NPCC is particularly applicable to the tire industry. In China, Shengdatech is the only company right now that is supplying NPCC products to the tire industry.

The company also boasts a separate chemical division that supplies products like ammonia bicarbonate, liquid ammonia, methanol, melamine and other agrochemical products in Shandong Province, China.

In its recent third quarter of 2007, Shengdatech generated record revenues of just over twenty-seven million dollars, representing growth of 44% over revenues generated in the third quarter of 2006. Gross profit was a record $9.7 million, up 73% from gross profit in the same quarter a year ago. Gross margin was 35.6%, as compared to gross margin of 29.7% in the third quarter of 2006. Net income for the third quarter of 2007 was $7.8 million, representing impressive growth of 63% over net income of $4.8 million generated in the third quarter of 2006.

During the latest quarter, the company added nine new domestic customers and three new international customers. Over 70% of the company’s new capacity was immediately sold to current customers who increased their order size.

The company is confident that it will meet or exceed its guidance for the full year 2007, with revenues expected to be between ninety-six million dollars and ninety-eight million dollars, and net income to be between twenty-three million dollars and just over twenty-four million dollars.

Like with many Chinese companies, this one is experiencing solid growth with exceptional levels of profitability. I think this stock is very cheap right now and unappreciated by the marketplace. The chemical business isn’t often considered an exciting industry in which to invest, but as Shengdatech illustrates, it sure can be profitable.

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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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