On October 17, 2006, we profiled Songzai International (SGZI) at $0.07 per share. On September 25, 2007, the stock was trading at $0.93 per share. That is an increase of 1228%! A $500 investment in the stock would have been worth $6642, not a bad return. However, what can we learn from trades like this? Why did this stock go up so much? Why did we profile it to begin with?
First, Songzai is a Chinese company. The emerging/foreign markets were on fire during 2007. In fact, iShares FTSE/Xinhua China 25 Index was the second best performing ETF during 2007, it was up 61.51% for the year.
Secondly, Songazi is a coal company. The DJ Coal Index was up 77.30% for 2007.
Third, the price of coal was on the rise at the time of the profiling. What we wrote at the time was, "The average selling price of coal in the first half of 2006 was $22.5 per ton, compared to $17.5 per ton during the same period in 2005. The rising price of coal will assist Songzai in achieving profitability."
Fourth, at the time of the profiling, net sales were up and expenses were down.
Lastly, the stock was in an oversold state which allowed for a good entry into the trade.
Overall, what you can learn is, pick a stock in a booming sector(s), a company whose financials are improving - ideally the company should be profitable and look for a stock in an oversold condition that allows you to buy the stock "on sale".
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