BUYING GAP-UPS

BCSI / CNTF

I am watching both stocks this morning. BCSI missed expectation by a couple of cents and its outlook is a little timid, particularly on revenues. It plunged mainly because it is priced for perfection and any hiccup will be punished severely. Even with this morning’s gap down, in my view, it remains expensive as it is traded close more than 40X of this year EPS and more than 30 of next year’s EPS. CNTF on the other hand, appears extremely cheap. Even with the gap up, it is traded about 10X of this year EPS and about 7X of next years EPS, while growing its business by about 100%. I would like to open a position on CNTF, but not too sure when to pull the trigger. There are a few risks here: increasing competition, political risk, and lack of coverage. Furthermore, I have added a few growth stocks lately. Is it prudent to add more here? The market also appears tired here, which will not favor growth stocks in general. Am I hoping another CMED with CNTF? Maybe.

I took a small position on CNTF ($11). My only discomfort is the fact that it shot up by 30% today. But on the other hand, my indecisiveness has caused me 10% already. Is it a good stock? YES! Is it reasonably valued, even with the gap up? Even more emphatically.

I also put a very small bid for HRAY, another Chinese-Concept stock. KONG’s results last night was pretty good too, although stock’s reaction has bee rather muted. The multiples for smaller Chinese concept stocks are deeply discounted, and it appears that appetite for Chinese-concept stocks is gearing up again!.