“China Car Boom to go Ballistic” Navellier

If you give me a rally, I’ll give you Louis Navellier touting a stock that has already doubled or tripled — the man just loves his momentum.

And what do you know, China stocks have had a mighty, mighty rally this year … so here I give you, Louis Navellier’s latest teaser pick for his Global Growth newsletter.

“The biggest profit opportunity of 2009 is at hand, and there’s simply no stopping it.

“Louis Navellier here, and a tidal wave of China car buyers are about to push up our favorite China auto parts company’s profits to new heights, and doing so could make you another 100% to 300% richer in 2009.

“Hard to believe? You bet.

“But not when you realize our China auto parts supply company has already jumped 312% since March 9th and could easily make another run at another 312% again in 2009.

“And I’m not the only one who says a mammoth breakout is coming your way in the China car market.

“As Sunday’s USA Today reported, China’s car-buying boom is not only real but also is here NOW. If you act quickly, you can grab the next wave of profits.”

And then at the close he throws in a couple more clues that seal the deal:

“If you’ve read this far and decided not to grab my $9 China auto parts company, please remember this:

“1. The company has already risen 312% in the next 90 days on just 28% earnings and sales growth, and now…

“2. With the government now offering hundreds of millions of dollars in incentives to buy more cars, this will not only add to this company’s profits when 2nd-quarter earnings come out, but the spike should send the stock’s price soaring again— whether you own this one or not.”

So … $9 stock, auto parts, China, is up 312% in the past 90 days, had 28% earnings and sales growth in the most recent quarter. What’s that?

Throw it all in the Thinkolator, and we find that this must be …

Wonder Auto Technology (WATG)

This fits the bill quite nicely — it is certainly an auto parts maker in China, sales growth was 28.5% in the last quarter, and earnings growth was 29.8% according to Yahoo and 26.7% according to Morningstar, so I’ll accept 28% as a happy medium.

And the 312% rise in 90 days? Well, not really, but everybody screws up that math — it has tripled from about $3 to about $9, but that means the stock returned 200% (or 212%, if we’re sticking with the tease), not 300%. So I think that’s still probably a match. The stock is graded “A” by Navellier’s system, so we know he likes it (it scores high in all areas except “earnings momentum”).

Will it really go up another 100% in short order? Now that’s a good question. Certainly every auto maker on the planet is looking to China as their best hope for restored profitability — there’s a growing cultural excitement about cars, the government’s building tons of great highways (unlike, say, India, which can’t seem to get its act together on any public works projects), and there is a growing middle class and a growing cadre of inexpensive car manufacturers that are starting to meet in the middle at some level of affordability that allows for rapid growth in car ownership.

If I was betting on the car business I’d probably bet on China, too — I don’t know a lot about Wonder or have any idea whether they’re the best investment in that sector … most of the car companies I’ve looked at before have had a more easily identifiable niche, like BYD with the Warren Buffett blessing and their battery technology, or Tata Motors with the Nano “people’s car.” From what little I gleaned of Wonder from some quick reading it sounds like they’re mostly a maker of pretty ordinary electrical parts like starts and alternators — so their products may be commoditized, I suppose, but they must be doing something right because, unlike most US car part makers, they’re actually making a profit.

WATG shares trade at a decent valuation — if you believe the analyst guesses, they’ll earn almost a dollar next year, which means they’re trading at a single digit forward PE ratio, not bad for a company that’s got solid profit margins in the teens, projected earnings growth of better than 15% a year, and a very reasonable amount of debt.

If I were looking to buy Wonder shares I’d want to know how diversified their customer base is (ie, are they building parts just for Toyota or GM or Chery or whoever, or do they work with lots of companies), and whether they’ve got any kind of intellectual property that creates real value or they’re just cost-cutting makers of cookie cutter parts (not necessarily bad, but it often means you’ve got less staying power in a very competitive marketplace — other people can cut costs, too, especially in China). I don’t have the answers to those questions, and I can’t say that I’ve been that excited about buying any Chinese industrial companies lately, but if I were going to buy a car stock it would probably be one with a good Chinese connection.

So what do you think? I, um, Wonder. Share below.

Oh, and if you want to know what other Gumshoe readers think of Global Growth or Navellier, or share your own thoughts about his products, click here.

The author will always disclose any direct long or short equity, debt or option position in any stocks written about as of the day of publication, and will not trade in any stocks mentioned for three days (72 hours) after publication. Full disclaimer is at the bottom of the page.

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1. uh, yep… also solved yesterday in the forum by woman with portfolio

   [Reply]

   

   StockGumshoe Reply:
   June 18th, 2009 at 8:36 am

   Guess I’ve gotta be quicker to beat y’all on the forum! Thanks.

   [Reply]

   

   Kash Prakash Reply:
   June 21st, 2009 at 8:48 am

   First everyone has to realize that
   all newsletters have one thing in common, they want to SELL you a subcription. Second, not all their carrot waving picks are good or make money, they are either lowvolume or YOU CANNOT GET OUT when you want to.

   Go wuth your GUT feeling. example, When GE dropped to $7.00 and change, I bought 100 shares on a GUT feeling. Now I dobled my money in less than 4 months, so try listening to your GUT, Avois newsletters, subscribe to Gumshoe
   Happ Fathers Day

   Kash

   [Reply]

   Posted by Katie Catt | June 18, 2009, 6:03 am

2. Louis bought it on May 18th.

   On June 8th he was saying “buy below $10.60″

   On June 1tth he was saying “buy below $11.05″

   Currently trading at $8.82…

   [Reply]

   Posted by KA | June 18, 2009, 8:57 am

3. No thanks ,Louis(if such a person really exists in the boiler room)!Caddies & Buicks are being made in the PRC & sell like hotcakes.The only thing that the PRC has going for it is population & I doubt that those in the western provinces or Manchuria will have the means to purchase a vehicle.Will this company or does it have contracts with the majors to supply parts similar to the mom & pops in Japan?Will the Chinese pyrchase a new vehicle every 2-3 years or run up to 300,000 miles?What if the PRC goes to war? I would assume ,like ww2 here,all production would convert to a war footing.BTW Travis,you might like to research for 3 interesting stocks/etfs-AGD,AOD,AWP.

   [Reply]

   Posted by Bob M. | June 18, 2009, 9:43 am

4. A better value based on earnings and price is TXIC/TXICW. They’re mostly on the Chinese commercial vehicle side, and are expecting at least $1.10 EPS for ‘09, with .36 already in the bank…stock is at 5.10

   [Reply]

   Posted by microman | June 18, 2009, 9:50 am

5. SORL, parts for commercial vehicles and buses. could benefit from stimulus spending, any building of infrastructure. any thoughts?

   [Reply]

   Posted by ellen braun | June 18, 2009, 12:34 pm

6. TATA Motors has a lower PE, & more Indian adults own their cars than the 15% of the Chinese adults that own WATG cars.

   http://finance.yahoo.com/q/ta?t=1y&s=TTM&l=on&z=m&q=l&c=WATG

   They both seem t/b joined at the hip until you look further back, and here you see the olympic’s advantage cause WATG to take the lead & hold that lead so far.

   http://finance.yahoo.com/q/ta?t=2y&s=TTM&l=on&z=m&q=l&c=watg

   [Reply]

   Posted by SageNot | June 18, 2009, 2:56 pm

7. Mitchell Clark with Lombardi’s Micro Cap Reporter has been touting Wonder Auto for over a year and it has moved up nicely from the time he first recommended it. From memory I believe they do have a fairly broad and growing customer base recently opening distribution in the U.S. Would have to get into back issues to get specifics but they seem to be deeply embedded in the Chinese market and growing market share!

   [Reply]

   Posted by Myron Martin | June 20, 2009, 7:23 pm