Tag - AMEX:NEP

The market made a nice move higher yesterday, but the Russell 2000 small-cap index came up short of closing at the 600 level. Intraday, the index topped out at 597 around noon then trended sideways for the afternoon to close at 595. As I said yesterday, the longer the Russell 2000 stays below 600, the more likely it becomes that the psychologically important level will act as upward resistance.

But despite the pressure on the index, several small-cap stocks that we've been following here in Small Cap Investor Daily are moving higher. Lancaster Colony (Nasdaq: LANC), a company I first recommended on December 4^th has risen 12.5% since I mentioned the stock in this newsletter. 

And the stock has risen 2.2% since I gave you my take on Lancaster's earnings release on January 29^th, despite a 2.1% decline in the Russell 2000 over the same period.

At that time I wrote, "Lancaster Colony won't knock your socks off, so feel free to sit back and relax while you read this. But the stock should be trading at least 10% higher, and could even rise as much as 28% in the next six months. That should be exciting to investors."

This stock should gain at least 8% more in the short-term, and as much as 26% more over the next six months

There has been a lot of talk over the last few weeks about how China is a massive bubble just waiting to explode. Well, it is high time for China bulls to push back. All the China bubble chatter misses a number of key underlying elements (I'll talk about these in a minute). I firmly believe that it is important for investors to have exposure to China equities in their portfolio for several reasons.

A short-term pull back in China stocks like we've seen the last three weeks doesn't mark an end to the country's remarkable long-term growth prospects. In fact, it just may have presented a timely buying opportunity allowing you to pick up shares of your favorite companies on the cheap.

I recently presented by thoughts on China and a few of my favorite stocks in an investing seminar, China Inc: Understanding China for Outstanding Profits. Just click here to watch the seminar now. In the webinar, I discuss why China's quasi-corporate structure will continue to reward investors. I also share a few of my favorite sectors and discuss specific stocks in each that have the potential to be big winners in 2010.

We're going to open the mailbag again today and take a look at a stock that I've received multiple requests to check out. And I'm pleased to say that SmallCapInvestor Daily readers are starting to send in some great picks. Today's company is China North East Petroleum Holding (AMEX: NEP) and it is an oil exploration company with 247 producing wells on 4 oilfields in Northern China. The stock is currently trading around $10.45 per share and with 25.9 million shares outstanding the company has a market cap of $271 million.
This is an interesting company that has seen its stock rise 410% over the last 52-weeks, but I think there is still more upside to come for shares. This is a good one to run through my eight step process for analyzing small-cap stocks that could put big gains in your portfolio. I outline this process in my book The Small Cap Investor, and also included it in a recent article that you can read by clicking here.
When considering a potential investment the first step is to look for sectors that are experiencing growth, and China North East Petroleum passes with flying colors. There is no doubt that worldwide energy demand is growing and the fact that this company is located in China, an economy I'm very bullish on, is a big plus. Remember that this is a country that posted 8.5% GDP growth throughout 2009 when many countries were contracting.
Also, this company benefits from less competition then independent developers in other regions of the world and the Chinese oil industry is relatively immature. That means there is a ton of room for acquisitions of private players as well as lease agreements with big dogs like PetroChina (NYSE: PTR), a company with a market cap of $225 billion. Either way, massive opportunities exist for top line growth for China North.
We don't need to follow step two which calls for screening stocks once we've found a growing industry since this company comes by reader request. So let's just move on to checking the fundamentals of China North East Petroleum's operation.
I like what I see here too, management was able to navigate a tough year in 2009 when oil prices plummeted to a multi-year low near $35.00 a barrel. The company increased production and expanded into oil drilling, all while continuing to post a profit. It's drilling expansion came by way of the acquisition of private driller Song Yuan Tiancheng Drilling. The acquisition was done in October at a time when prices for many assets were still deflated and it effectively transformed China North into a diversified oil exploration and production company.

These are the biggest percentage gainers among companies with market capitalizations under $500 million:

These are the biggest percentage losers among companies with market capitalizations under $500 million: