China has been good to investors. Thanks to a wave of hot Chinese companies that have become phenomenally successful in U.S. and global markets, investors have been rewarded with exceptionally high returns.

Even as the U.S. economy fights to stay out of a recession, consumer spending slows, the credit crunch worsens, bleak financial market news becomes the norm, and a wave of American businesses struggle to stay afloat, many companies tied into China's booming economy continue to prosper. 

China Direct, Inc. (AMEX:CDS), an American firm that assists Chinese companies with accessing the U.S. capital markets and owns controlling stakes in a diversified portfolio of China-based businesses, has been no exception. China Direct invests in profitable, well-managed Chinese small to medium enterprises (SMEs) that account for 75% of the growth in the Chinese economy and have difficulties obtaining capital through traditional channels. After incorporating as Evolve One, Inc. in 1999, China Direct quietly meandered along until it grabbed the Street's attention in November 2007, when it posted unexpectedly high third-quarter revenue gains, swung into the black and upped its earnings outlook for 2007 and 2008. 

China Direct's recent success can be attributed to savvy acquisitions made by its smart management team, which has significant experience in top public and private enterprises in the United States and China.

In October 2006, it snapped up a 51% interest in Shanghai Lang Chemical Co., Ltd., a company that sells and distributes industrial grade synthetic chemicals. In February 2007 it bought a 60% majority stake in Chang Magnesium Co. Ltd., operator of a magnesium refinery in Taiyuan, China, and it secured 51% ownership of CDI Wanda Alternative Energy Co., Ltd., a recycling company that converts waste rubber tires into gasoline, diesel and fuel oil. In November of 2007, it acquired CDI Jixiang Metal Industry Co., Ltd., a company with sole mining rights to a parcel of land in the zinc- and lead-rich Yongshun Kaxi Lake Mining area. In December 2007, it bought a 51% stake in Baotou Xinjin Magnesium Co. and Baotou Sanhe Magnesium Co., Ltd., two magnesium companies.

The company relocated from Boca Raton, Fla., to nearby Deerfield Beach, Fla., in January, but investing in new, expanded corporate offices is not the only move China Direct has made this year. It reported a successful round of testing of new tire recycling technology at its CDI Wanda subsidiary, which last month entered into a joint venture called Yantai CDI Wanda Renewable Resources Co., Ltd. China Direct plans to invest $750,000 over the next several months in a new facility capable of processing 6,000 metric tons of waste tires annually. The new venture will be located in the Yantai development zone and industrial park, which qualifies it for government renewable resources funding incentives. China Direct has also started magnesium production at two new facilities and expanded operations at a third facility.

"We are excited to have closed on this new operation as we continue to see magnesium industry trends remaining favorable for the foreseeable future. This facility will implement high temperature air combustion technology, also known as flameless combustion to reduce production costs as we seek to maximize gross margins at these state of the art new facilities," Dr. James Wang, chairman and CEO of China Direct said in a statement announcing the venture. "This investment demonstrates management's commitment to our magnesium division and will increase China Direct's overall magnesium production capacity to approximately 50,000 metric tons annually by the end of the second quarter of 2008.”

Wang said that with the additional capacity, the company now anticipates that its magnesium division, through both manufacturing and wholesale distribution, will sell approximately 80,000 metric tons in 2008, solidifying China Direct’s position as a global leader in this industry.

Magnesium prices rose sharply in 2007, and China's soaring demand for the rare metal is expected to drive prices even higher in 2008, which would positively impact China Direct's earnings this year. Industry experts predict China Direct will become a dominant player in the magnesium industry in the next few years.

For 2007, the firm is projecting revenue will come in between $170 and $180 million, driven by continued strong performance from its subsidiaries and new joint venture operations. China Direct is forecasting 2008 revenues will top $270 million with net income over $20 million.
 
The company will release its fourth-quarter and fiscal 2007 earnings after the close on March 31. An earnings conference call is scheduled for 4:30 p.m. EDT the same day. A live Web simulcast of the call will be available at http://www.viavid.net.

China Direct’s stock, which closed at $5.79 on Wednesday, has a 52-week low of $2.55 and a high of $12.95. Various pundits forecast that shares will rise to anywhere between $12 and $20 by the end of 2008. Last month, analysts at Global Hunter Securities initiated coverage of China Direct with a "buy" rating and a 12-month target price of $13.
 
In the near term, China Direct's (CDS) growth will be largely driven by its magnesium and clean-tech divisions. Its savvy acquisition strategy and capacity expansion efforts will likely contribute to substantial revenue growth over the next year or two.