I found a penny stock that is wildly profitable, has cash-in-the-bank, no debt and is serving the large and growing Chinese market.  It has a depressed stock chart that is showing signs of bouncing off a bottom (although I never call bottoms).  It is a stock that is worth looking at for a swing or position trade (maybe a long term hold….but that is not my call).

As the title indicates, I am blogging today about China Electric Motor, Inc. (NasdaqGM: CELM). The company sells micro-motor products through its subsidiary Shenzhen YuePengCheng Motor Co., Ltd mainly in the Chinese market.

It is a company that has had a very volatile 2010, trading as high as $9.88 and as low as $4.44.  In fact, CELM is still trading near the bottom of that range…and I believe merits a look by the serious trader.

The Chart is speaking to me:

CELM tested its low for a second time in a short period which can be a sign that this move might have some strength to it.

I would watch to see if CELM can establish an uptrend.  The play is a short term one….not a day trade, but rather a swing or position trade.  The chart clearly shows that all rallies have been short ones (a couple trading days at most).  Unless the stock establishes a clear uptrend, I would keep tight stops on it and take profits on any dips.

Volume has tailed off recently.  The company needs an effective promotion or some news to drive more volume into the stock.

See my annotated chart below:

A Strong Balance Sheet

As a former CPA, I read balance sheets and income statements like anyone else reads the newspaper.  CELM’s financials are a good read.  I can tell you that CELM’s balance sheet is surprisingly strong.   As of the March 31st Q end, they had $1.16 in cash per share, no debt, $33MM in the bank……most companies would kill for that balance sheet.

From the income statement side of the ledger, sales are increasing and so are margins.

When I see a balance sheet like this, I get comfort from the fact that no matter what “bumps in the road” that the company encounters it has the financial wherewithal to survive them.

This hoard of cash also gives rise to the idea that CELM might be in the market for some acquisitions.  Nothing in their public info states that….just a hunch on my part.

Bottom Line

CELM is a strong trading idea

Here is what I am looking at for entry/exit points

Last Close:              $4.78

Buy Opinion:          $4.50 – $4.90

Short Term Sell:    $5.40

Long Term Sell:     $6.00+

Good Luck and Great Trading,

Jeffrey Dean

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