July Idea of the Month: Chinese Steelmaker GSI

By Travis Johnson, Stock Gumshoe, July 31, 2008

This one will probably not be a shock to you, because unlike some of the others I’ve featured in this space it is a company that I wrote about on StockGumshoe.com fairly recently, and fairly positively.

I’ve since had some time to look over the company’s fundamentals and market more thoroughly, and I think now my best idea for a new investment is General Steel Holdings (GSI).

Shares closed today at $15.50 but fell significantly in after hours trading as I was writing this, to under $15 … it is in an uptrend at the moment, and has been for months — if you ignore the significant up and down volatility. You could have bought shares at $6 in March, or $16 in June before it dipped to $10 on their latest acquisition announcement and then climbed back to the current price within a couple weeks (thanks to increasing press coverage and attention from pundits and newsletters, and their big earnings growth).

I’d ideally like to pick up shares in the $13 range, and I think it’s probably likely we’ll see that price or lower again at some point this year, but I would start to build a position here, around $15, and wait for likely dips to add to that position. Closing price was $15.43 today, and it has traded down below $15 after hours for some unknown (to me) reason. The shares got as high as $20 when they got their Amex listing last Fall, and as low as $5 when all things China were hated over the Winter.

I do not own the shares now, and per my rules will not buy them within the next 72 hours. Given the short term performance of the two prior stocks I’ve featured in this space (both down significantly so far), I want to make clear that while the shares are currently moving up, I am not promising that they will be higher a month or two from now — I do expect them to be significantly higher in two or three years.

General Steel is a smallish company that is rapidly becoming a force for consolidation of small state-owned firms in the Chinese steel industry — they are growing by acquiring poorly run, undercapitalized, small, and/or inefficient state-owned or formerly state-owned steel companies in China, mostly at what seem to be fairly cheap prices ...

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