CAAS – Initiation of Buy Recommendation

By: ispeculatornew
Date posted: 07.07.2007 (12:00 am) | Write a Comment  (0 Comments)

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CAAS – China Automotive Systems (Nasdaq) (Closing Price – $7.39) 

China Automotive Systems (CAAS) is a company that has decent fundamentals and a potentially huge market. Its share price has also had some interesting movement the last few years.

China Automotive Systems engages in the manufacture and sale of automotive systems and components in China. Needless to say the potential of the Chinese automotive market is considerable. Furthermore, it was recently announced that one of CAAS’s customers, Chery Automobile Co, and Chrysler were moving ahead with a plan under which Chery will build cars for export under the Chrysler name. This will benefit CAAS’s results in the future.

China Automotive Systems has reported earnings of 0.03 (Q2 06), 0.07 (Q3 06), 0.06 (Q4 06), and 0.07 (Q1 07) the last four quarters. Earnings have been stagnant due to pricing pressure in the Chinese auto-parts industry but last quarter margins improved due to a cost control program. Revenues have grown the last three quarters and if that trend continues and margins continue to rebound earnings will grow in future quarters.

As I said before the fundamentals of CAAS are okay but the more intriguing aspect of CAAS is its technicals (chart patterns). If you look at CAAS’s five year chart you will see that towards the end of the year CAAS usually has a spike in share price and volume (usually without a catalyst). That may not happen this year but since CAAS is trading close to its support level now would be a good time to get in and wait.

I think the potential upside in the next couple of quarters is much greater than the potential risk and I am going to initiate a buy recommendation at today’s closing price.

Disclosure: I currently own shares of CAAS.

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