For today’s stock, my recommendation is a mid-sized ($1 billion in revenues) steelmaker named General Steel Holdings (GSI).

Here’s what Paul Goodwin of Cabot China & Emerging Markets Report wrote a month ago in that publication:

“China’s appetite for steel is enormous, gobbling up about one-third of the world’s output every year.  The country is also no slouch as a producer, turning out about a third of the world’s yearly total.

In an environment of consolidating giants and government planning, there is one small company that has found a profitable strategy and is growing strongly.  It’s General Steel Holdings, one of the largest non-government-owned steel makers in China.  The company is thriving by acquiring rivals and installing Western-style management to increase efficiency.

General operates through three major subsidiaries, including 1) Tianjin Daqiuzhuang Metal Sheet, a maker of hot-rolled carbon and silicon steel sheets that are used to make tractors, agricultural vehicles and shipping containers.  2) Baotou Steel Pipe makes spiral-weld steel pipes for oil and natural gas and petrochemical markets.  3) Longmen makes pig iron, crude steel, re-bar and wires.

For a company like General to break out of the pack, there must be a distinguishing advantage, and the income statement would indicate that management is making the difference.  The company’s managers have shown that they can deliver on their strategy of growing through acquisition, with EPS increases over the last four quarters of 500% (Q2 ‘07), 2400%, 750% and 200%.”

I look at the chart and I see a stock that came public in October 2007, peaked at 19 two days later, coinciding with the broad market’s top, and then declined to build a broad bowl formation that bottomed at 6.  When Paul wrote about the stock a month ago it was selling at 13 and trending up.  Today it’s 15.  I think it will hit its old high of 19 in time, and eventually break out to new highs.

This is taken from the July 23 issue of Cabot Wealth Advisory written by Timothy Lutts.