China Electric Motor (CELM): A high-risk, high-potential stock

By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory, 4/8/10. Sign up for free Cabot Wealth Advisory e-newsletter

My stock idea today—China Electric Motor (CELM)—is appropriate for fans of high-risk, high-potential stocks. The company makes small electric motors of the kind that power automobile windshield wipers, lawn trimmers, hair dryers and air conditioners. With 31 product lines that include 1,200 different specifications, the company’s motors power an enormous range of devices.

Roughly half of sales go to Chinese customers and sales growth has averaged 78% for the past five years, with earnings increasing every year. The company’s Q4 earnings report on March 31 showed a 50% jump in earnings (to 15 cents a share) on a 58% gain in revenue.

The risk in CELM comes from its thin trading volume (just 256,000 shares a day, on average) and its low price (it came public at 4.5 in January and hasn’t yet topped 7). These figures reflect a potential for high volatility and will probably discourage institutional investors.

But with a product line that will benefit from increasing Chinese sales of consumer goods (like blenders, air conditioners and autos), the potential is there.

I follow companies like China Electric Motor all the time, gauging when they show the right blend of market opportunity, fundamentals and improving investor sentiment to become part of the portfolio for the Cabot China & Emerging Markets Report. When the time is right, I’ll recommend this company, or another with an even better package, to my subscribers. Then I’ll follow up that recommendation with advice about when to buy, when to hold and when to sell.

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Paul GoodwinPaul Goodwin
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report

A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.