“Quadruple Your Money in Six Months … Thanks to Our Secret Ally — The Chinese Government”

By Travis Johnson, Stock Gumshoe, September 23, 2010

Ah, good ‘ol Robert Hsu — it looks like he recommended a stock on August 19 to his subscribers, a coal company in China at about $11, it shot up to $16 (thanks in no small part to that recommendation, I’d water), and then it collapsed over a couple weeks to the current price, under eight bucks.

I always thought Hsu had a bit of the technical/IBD/momentum chaser in him, generally recommending stocks that are running up — but if so, he’s either abandoned that sentiment, or has fallen in like with this stock, because he apparently did not want to sell it after it fell by almost 50%, but instead wants to buy it … and now, instead of a double, he thinks you’ll get a quadruple in the shares.

Not that I generally disagree with this — if a stock that you like for fundamental reasons falls by 50% and that fall looks overdone, it may well be a fine time to invest … but I haven’t seen this kind of behavior from Hsu before. At least, not in the teaser ads he puts out (I have not, of course, ever subscribed to China Strategy or Asia Edge, so I don’t know exactly how he communicates his ideas).

The stock is one that I wrote up for the Irregulars in a Friday File several weeks ago, shortly after Hsu had started teasing the stock the first time around — but most of you won’t have seen that (there are, tragically, only a small percentage of dedicated readers who have joined that select group of my favorite people). If you remember, this was pitched at the time as a way to profit from that massive traffic jam of coal trucks heading from Inner Mongolia to Beijing.

So let’s see how he’s pitching it now, and in so doing we’ll try to figure out why the stock is bouncing around like a superball … or more accurately, I suppose, like a superball thrown against the ceiling.

Here’s how he pitches this “revision” to his recommendation:

“Our top China stock just got cut in half, and I couldn’t be happier.

“In fact, I predicted it would happen!

“I told my subscribers back on September 2nd that early private investors in China’s top publicly-traded coal-consolidator would sell as soon as the lockup period expired on their restricted shares.

“They did, and an outstanding stock dropped from $16 to $8 last week.

“Now that the weak hands have sold their restricted stock, you have been given an incredible gift: A stock that was set to double in the next 6 months is now set to quadruple.

“But this opportunity won’t last for long. New buyers are quietly accumulating shares. They share my belief that this stock is going to $32 and beyond, thanks to its unique position—the only non-state-owned company that will get to buy cheap coal mines at fire-sale prices mandated by the Chinese government.

“Read on and you’ll see why the 30% three-day profits we recently captured are just the beginning, and a return to its old high of $46.50 is easily within reach.”

That’s all well and good — and as I said, I don’t have access to exactly what he wrote to subscribers … though all the evidence pointed to the fact that he recommended the stock to his subscribers, and actively pitched it to new subscribers, two weeks before that. If he then recommended that they sell after the quick bounce-back, well, I’m impressed … if not, then, as I said, he’s being more of a long-term-value no-stop-loss fundamental guy than I thought (not that there’s anything wrong with that).

But really, for our purposes we just want to know what Hsu thinks will happen from here — he tells us that this pick will “quadruple your money in six months” and, well, I can’t think of anything that I’d be willing to promise would climb like that. So what is it?

Here’s the basic info from the new ad:

“Like many early investors in China, I have owned Baidu, CNOOC, Ctrip, and all the great China stocks that have made fortunes for my subscribers and other early investors in China.

“But I know that the big profits from those well-known stocks are over.