Top 50 Companies of 2010, Part 1

by Zack Buckley, GeoTeam Contributor

After researching over 5000 companies, I have come up with 50 stocks that I believe to be the most undervalued companies. While I do not know where they will be going in the next year, as I cannot predict the market, I believe in the next 5 years investors will be very rewarded by purchasing these companies.

The purpose of this series is not to go into great depth in the greatest opportunities in the world, but to cover enough to prove that listening to us in the future is worth your time. I will guarantee I've done much more research than my cursory summaries show. I am so emphatic about the prospects for these companies that I am going to China this summer to visit these companies. I obviously do not like my 50th choice as much as my first, so I have created a tier system for the companies. While I think they are all great buys, the articles are tiered beginning with my favorite companies and ending with slightly less attractive but still very undervalued companies.

My first company is HearUSA (EAR), a potential buyout candidate, and is only an 80 million dollar company. Siemens has 600 million Euros to purchase a company, and cannot purchase any company that competes with EAR. You do the math. EAR is also expanding their business across the US.

Another US company is DJSP Enterprises (DJSP), my last US company for the top 50, they service FORECLOSURES IN FLORIDA, and are expanding their business across the US. As we all know foreclosures are sky high in Florida and high across the US. The P/E is about 5 right now and they are expanding rapidly.

China Sun Group High Tech Company (CSGH) is a battery manufacturer in China with three main products, cobalt carbonate, cobaltosic oxide and lithium cobalt oxide, used in the production of lithium-ion batteries with a P/E of 8.33. For FY2008 CSGH saw revenue growth of 46% and net income growth of 27%.

Biopharm Asia (BFAR) is trading at a P/E of 4 and expanding quickly, with 22% revenue growth in 2008. BFAR has its own line of Chinese traditional medicines, and is also a distributor of pharmaceuticals. BFAR seems too cheap not to own.

Skystar Biopharmaceuticals (SKBI) is a fantastic company due to a strong sustainable competitive advantage they have due to being the only veterinary medicine company in China that is not a stated owned enterprise. With a p/e of 6, over 30% annualized growth, and return on equity currently over 50%, this is a no-brainer.

Biostar Pharmaceuticals (BSPM) is another great pharmaceutical company with a sustainable competitive advantage; BSPM has the only government approved OTC treatment for hepatitis b in China. This may affect up to 130 million people. BSPM is expanding their sales outlets from 3,500 to 10,000 just this year! With a p/e of 8 this company is incredibly cheap both on a current and forward looking basis.

China Energy Corp (CHGY) is a 100 million dollar company divided into two business segments, their coal group and heat power segment. Their coal production in 2010 is estimated to be larger than 2008 and 2009 combined due to a change in their mining methods which changes the recovery rate from 35% to 80%.

With the opening of their factory this year China Biotics (CHBT) plans to quadruple revenues. While it may currently look expensive with a p/e of 23, at full capacity this company could be as low as 5.75, not to mention they expect to continue growing rapidly in subsequent years, with a potential 1000%+ revenue growth in the next 5-10 years.

Longwei Petroleum (LPIH) will make $.65 per share based on 2011 guidance to capacity expansion. Rumors are that things are going as planned and they should be able to continue growing.

I will leave you with a somewhat speculative but extremely rewarding company. This is a 48 million dollar company with a current p/e of 4.2. Jade Art Group (JADA) is up over 50% just as we have written this article. Jada's mine can produce up to 40,000 tons of jade per year. With jade at 3,200/ton, that makes 128 million in revenue for a full year of capacity. With profit margins hovering around 60%, I conservatively estimate net income of 60 million at full capacity, this would put the company at a p/e of less than 1! Jada is a growing company, just for it to return to a reasonable p/e of 10 would make the stock a 20 bagger!

Disclosure: At time of this article, Zack was long SKBI BSPM WKBT CKGT CSKI CPHI

Profile

GeoTeam Contributor Zack Buckley is CEO of Uncoveringalpha.com and a research analyst at Geoinvesting.com. He developed his investing methodology by synthesizing the ideas from the best investors of all time, based on their track record. This led him to closely follow Warren Buffett, Peter Lynch, Seth Klarman and Benjamin Graham. Using a value approach, he pursued the most undervalued companies he could find, which led primarily to companies in China. Buckley will be spending three months this year in China visiting companies that are exciting investment opportunities.

***Follow him on his blog, Uncoveringalpha.com, as he travels across China touring factories and interviewing management.***

Part 2 | Part 3 | Part 4