One of my favorite stocks that I have traded in and out of for many years is American Oriental Bioengineering (AOB).   AOB is a company that gets a great deal of U.S. press for a company that only has a $350MM market cap and sells primarily in China.  Maybe it is the name…easier to remember than a number of other Chinese stocks.  Maybe it is their track record (i.e. they have been a high-flyer in years past, trading as high as $14/share in late 2008).  Maybe it is because Chinese stocks are very volatile.  Maybe it’s because they market a drug Jinji Yimucao for the treatment of premenstrual syndrome (PMS) and every man in China is buying it for their wives and slipping it in their drinks when they aren’t looking!

As I mentioned in the last paragraph, I trade this stock and plan to again very soon.  However, on the day that I sat down to write this blog, I was amused by several news articles I read about AOB.  One was a story about the research/investment banking firm of Brean Murray which downgraded AOB on April 24th from Buy to Hold.  On the same reading list were several articles from the Motley Fools touting AOB as on of their 5-Star stocks.

Who’s right? Not sure, but I am siding with the Fools.  AOB has begun to climb back out of the hole their stock has been in early January when it gapped down from $7.03 to $5.51 on January 7th, 2009.  The stock continued to lose value until March 9th, 2009 when it bottomed out at $3.30.  Since then, the stock has been trending upwards and closed in Friday’s trading at $4.46.

The company appears to be very well run.  They have strong fundamentals (good cash reserves, profitable, good ratios, etc…).  The only thing that is of concern to me is the debt they added this year, but they have excellent cash flow and it does not appear to be an issue.  From articles that I have read and their own website, they have a stable of products that are selling well and several new ones in the pipeline.

As a chartist, I am not clear, yet, on the direction of the stock.  The MACD looks like it is close to a cross and it appears that AOB might be overbought.  It is trading above its 50-day moving average and with support around $4, it is trying to push into the $5 range without success.  It has tested $5 several times recently, but lacked the “oomph” to push through.

Now that I understand what they do, I will monitor the stock for the proper entry point.  However, I think I will make much more money now that I have signed up to be the U.S. distributor for their PMS drug.  Operators are standing by to take your order!