Out Fox The $treet

Prior to the open today, Lihua International (LIWA) posted earnings that beat analyst expectations. With only a couple of analysts following LIWA, that generally isn't that worthwhile. While news that the company is upping full year guidance and that they see strong demand in 2011 is extremely useful. LIWA reported revenue of $96.3M which was 135% over last year. EPS was $.33 versus $.13 last year. Margins were lower due to the new copper anode products having lower margins but they provide a higher return on invested capital leading to a larger bottom line and huge growth opportunities. LIWA is a leading value-added manufacturer of copper replacement products for China's rapidly growing copper wire and copper replacement product market. LIWA is one of the first vertically integrated companies in China to develop, design, and manufacture lower cost, high quality alternatives to pure copper magnet and pure copper alternative products. Except for CCA wire, all other products ...

Today Lihua International (LIWA) announced a major supply contract for copper anode equivalent to nearly 40% of their expected 2011 production. Even more incredibly is the announcement of more then 80,000 metric tons is potential contracts which alone exceed the production expectations for 2011 even after building another facility. Guess this explains why the stock soared over 11% yesterday. Guess this news wasn't that guarded. LIWA along with several other Chinese reverse merger small caps continue to be the cheapest investments into the China economy. Yet most investors continue to avoid these stocks due to fraud scares as if the US market is that safe. LIWA also confirmed guidance for 2010 and expansion plans are expected to begin soon. This remains one of the best ways to play the expected copper shortage beginning in 2011 and the huge demand from Asia. Anybody concerned about fraud can limit the position to less then 5% or diversify among other China plays like LLEN, PUDA,...

Great summary information from the CEO of US Global Investors on the impact of China on Copper supplies. Copper is expected to be in shortage in 2011 due to the return of growth in the US and Europe plus the unsatiable demand in the emerging world. Amount of copper used in common household items: Average single family house - 439 pounds Air conditioner -52 Refrigirator - 5 Automobile - 50 As can be seen, growing domestic demand in emerging markets for homes, air conditioners, and automobiles will strain the supply of copper. Supplies are already dropping even though home building in the US is near historical low levels. Imagine when the US begins even normal levels of construction come 2011 or 2012.  Below is a chart from BMO Capital on the imports of copper from China. The numbers continue to surge making China by far the dominant influence on demand. Lihua International (LIWA) remains incredibly placed to take advantage of the looming shortage of copper...

Looks like Copper is going to break above the 52 week high of $3.6 and likely head back to the $4 range last seen before the financial crisis. Stone Fox has been pushing copper and such stocks as FCX, LIWA, and SLT. The interesting point about copper is that China now controls nearly 40% of demand and the US is around 20%. Assuming demand in the US rebounds it'll be the first time that the 2 biggest users are strong at the same time possibly putting a squeeze on the supply. See previous articles on the issues with supply. Below is a video last night from Mad Money with Tom Collins of TangleTrade Advisors discussing the bullish technicals of copper. Very much backed up by the trade today. Disclosure: Long FCX, LIWA, SLT

Interesting report from Financial Times that magnifies some of the recent negative reports on copper mining activities. Stone Fox has been very bullish on copper for a while now because of the promise of high demand from China and a return of demand from the US. So far the demand from the US hasn't materialized but the production issues and lower grade ore deposits have more then offset any lagging demand. As the report shows, the top 4 public miners produced 12% less copper then in 2009. Thats while prices have been above historical averages. In the first half of the year, the world’s top four listed copper miners – Freeport McMoran, BHP Billiton , Xstrata and Rio Tinto – saw their collective output drop 12 per cent from 2009. Freeport McMoran (FCX) remains our best pure copper play and operator. They also mine gold which happens to be very positive at this time. Lihua International (LIWA) could be a huge beneficiary of this trend towards lower mining output. LIWA is a Chinese re...

As the US markets sell off back into a technically negative levels below the 200ma, Dr. Copper continues to suggest that the panic over a slowdown in China and weak jobs reports in the US are very much overdone. The below real time 24hr price chart of Copper shows little additional impact from the US selloff today and in fact Copper continues to hold up at a very strong $3.26. Not very indicative of a weak China or a slowing US. Lihua International (LIWA) has become one of our favorite copper plays beyond the big play of Freeport-McMoRan (FCX). LIWA reported Q2 earnings of $.34 that easily surpassed the estimate of $.28. More importantly though (because analyst estimates shouldn't rule valuations) the stock trades at only 4x the EV of roughly $160M. LIWA has $85 in net cash on its balance sheet and generated a whopping $9M in cash for Q2. Why then is the stock trading so cheaply? Really why do all the small cap Chinese stocks trade at amazing discounts to growth rate? Possibly the ...

Bought Lihua International (LIWA) at $8.76 for the Opportunistic Growth Portfolio. LIWA is a producer of refined copper products in China. Yesterday they announced the opening of a new copper smelter that will double capacity. Today the stock fell to below the opening price prior to the announcement so we used the weakness to buy right at the moving averages. As I'm about to report on, the China markets have made a dramatic move off the bottom this month yet China stocks that trade in the US continue to lag. LIWA is a primary laggard and trades at roughly 4.5x the estimated 2011 earnings of $2. Considering LIWA makes around $1.2 on existing capacity I'd expect earnings for 2011 to double with capacity. Doesn't really matter with the stock price stuck below $9 whether they earn $2 or $2.5.