Chinese micro cap stock could yield a bountiful harvest

It was once a land of mystery, hidden behind what some pundits called “The Bamboo Curtain,” a nation in the midst of change and near superhuman progression in a very short time. But these days, a scant 60 years after Mao Tse-Tung wrested control and installed in Beijing a Communist government aimed at throwing the landowners out, China is now considered an engine of (dare we say it?) capitalist progress, one of the strongest economies in the world. It says something when China's economic growth registers at “only” 6.1% in the first quarter of this year, as if the brakes are being applied to such growth. Shanghai’s stock market is the best performing in the world since New Year 2009.

In short, it’s a time when great things are expected of more and more companies in the former “Red” China, and China Organic Agriculture, Inc. (OTC:BB: CNOA, Stock Forum) has proven no different. China Organic, a diversified food products company capitalizing on China's consumer revolution, came out last week with a truly startling (even for China) bottom line.

The company reports revenue for the full year 2008 was $112.7 million compared with zero from continuing operations in 2007. Net income was $20.5 million representing a 52% increase compared to $13.5 million for 2007. Lastly, earnings per share increased to 34 cents per diluted share, compared to 29 cents per diluted share for the comparable period of 2007.

What is truly remarkable about this performance is that China Organic sells its products almost exclusively to consumers in the relatively small Asia-Pacific region, catering to ever-more affluent customers with an appetite for premium products. However, last fall, management indicated that was about to change, as its new CEO, Jinsong Li, announced an expansion of its activities to capitalize on new opportunities in international food markets. This means CNOA will deal not only in green and organically grown rice, but also California wine, organic soybeans, kidney beans, mushrooms and other premium products.

The firm has also made investment contacts with agents in New York, which means that small cap investors can get on the boat before the stock gets too expensive.

The price has ballooned as high as $1.68 – last April, way before the recession was considered a worldwide phenomenon – and shrunk to as little as 11 cents last March, before climbing toward the 40-cent mark. It’s spring, and bargain sleuths may think of growing their portfolios with CNOA before the harvest.