But by the middle of September 2009, FUQI was just nudging 33 on huge volume.  Ten baggers are rare enough, but to get one from a Chinese jewelry company was shocking.

Today’s stock is LJ International (JADE), a smaller company (sales of just $125 million annually, compared with Fuqi’s $467 million).  This Hong Kong-based manufacturer of jewelry from gold, platinum and precious stones has been booking some excellent earnings numbers.

LJ’s four most-recent quarters have produced earnings growth of 150%, 50%, 600% and 800%, with after-tax profit margins of 7%, a multi-year high.

Earnings like that will get investors’ attention, and the trailing price-to-earnings ratio of 10 (and forward P/E of doesn’t hurt either.

JADE is just organizing a nice breakout above its long-time resistance at 3, while FUQI is completing a monumental flop to 6 having been tainted by some bookkeeping questions.

I like it that JADE is resisting the market’s volatility and inching above long-term resistance.

I don’t like that it’s a very low-priced stock (which will keep many institutional investors from signing on) and that trading volume is low (just 124,000 shares a day, on average).

But the example of Fuqi International gives some credibility to LJ International.  The Chinese appetite for gold jewelry continues unabated, and LJ International’s diversified distribution includes fine jewelers, department stores and TV shopping channels.

It will certainly be interesting to keep on your Watch List.

If you’d like more information about the stocks on the Watch List for Cabot China & Emerging Markets Report, you can grab a trial subscription here.  The Report is the top-performing investment newsletter over the past five years according to Hulbert Financial Digest.  And even more important, I have the Report’s portfolio 45% in cash right now in response to recent market weakness.  Sound good?  It’s easy to sign up.

Demand is down, in part because of lousy economic news (which I’m not going to go into today).

Bond yields are at record lows … a clear sign of the market’s “flight to safety.”

And it’s extremely difficult to find an optimistic economist these days.  (You know in your heart that they’re often wrong, but you listen to them anyway.)

Ben Bernanke commented a month ago that “the economic outlook remains unusually uncertain, ”and the President of Cisco, John Chambers, repeated that outlook after his company’s earnings report last week, saying, “We think the words “unusual uncertainty” are an accurate description of what’s occurring.”

The market, of course, hates uncertainty, but I’ve learned to embrace it, which is why I’ve been growing increasingly optimistic in recent weeks, particularly because the market hasn’t fallen apart.

So today I want to give you part two of my article on “Stocks to Hold Forever.”

Part one, back on July 28, told you about the amazing Mr. Phelps, whose investment strategy was to buy stocks with exceptional growth potential when they were young … and never sell them.

Qualities he looked for included:

•Revolutionary technologies or services

•New and cheaper sources of energy

•Small size, so it can grow fast

•Undiscovered by the masses

•Barriers to entry

•Superior profit margins.

And he didn’t minimize the value of buying when stocks are temporarily depressed … as they were in 1932 and, more recently, in 2002 and 2008.

Three years ago, I got together with the other Cabot editors and came up with a list of 10 stocks.  On July 7, 2007, I published this list.  And three weeks ago I reviewed the results … which were very good.

In those three years, the S&P 500 lost 24%.

But our 10 stocks had an average positive return of 39.5%.

(Details are in the July 28 issue of Cabot Wealth Advisory.)

So I got together with Cabot’s growth editors again, and we came up with a new list of nine stocks—we couldn’t agree on ten.  Two are repeats from the 2007 list—and here they are.

1. American Superconductor (AMSC) is a leading provider of the electronics that power wind power systems, where it presents substantial barriers to entry and growth potential is enormous.  The company has grown revenues every year of the past decade, its profit margins top 10% and it’s still relatively undiscovered.

2. Chipotle Mexican Grill (CMG) has the potential to be the McDonald’s of the next half-century … in part because this high-quality burrito shop was spun off from McDonald’ in 2006 … so management has been taught well.  Revenues are growing steadily and profit margins are consistently in the high single digits, which is great in the restaurant industry.  (It’s my son’s favorite restaurant, but I’m not the analyst who submitted it.)

3. Ctrip (CTRP) is the leading online travel agent in China, where a growing middle class and increased business activity mean the travel industry is booming.  Last year, the recession slowed revenue growth at Ctrip to 35%; in the latest quarter, it was back up to 47% … and profit margins were a very healthy 42.2%.  Ctrip was on the list three years ago.

4. First Solar (FSLR) is a leading manufacturer of solar power modules, boasting great growth of both revenues and earnings … and profit margins of 27% in the latest quarter, very impressive for a manufacturer.  The stock was a big winner for Cabot Market Letter in 2006 (we sold in March 2007) and like most stocks in the industry it’s spent the time since then cooling off.  I think it’s cool enough now.  First Solar was on the list three years ago, too.

5. Green Mountain Coffee Roasters (GMCR) makes the revolutionary single-serving Keurig coffee brewers, and gets a royalty for every cup of coffee that’s brewed in them, which is a great source of recurring income.  Barriers to entry are high.  The market is global.  Revenues have grown every year of the past decade.  And profit margins are healthy at over 8%.

6. Home Inns & Hotels Management (HMIN) is the largest hotel chain in China.  Growth is as easy as opening new hotels … the cookie-cutter growth model.  The company has no debt, unlike most hotel chains, and profit margins were 19.6% in the latest quarter.

7. MercadoLibre (MELI), located in Argentina, is the eBay of South and Central America—in fact, eBay owns 18% of the company.  Most sellers are businesses.  Growth is virtually assured.  The barrier to entry is very high.  And profit margins are over 20%.  MercadoLibre is the smallest company of these 10, as measured by revenues.

8. STR Holdings (STRI) makes the precisely engineered plastic film encapsulants used by most solar module manufacturers to protect their components from water, wind, radiation and shock.  Profit margins are 19%.  The stock came public just last year, so it’s not well known—in fact, it’s the most lightly traded of these 10 stocks.  But as the solar power industry grows, STRI should grow with it.  Coming off a slow 2009, revenues mushroomed 62% in the latest quarter.

9. VMware (VMW) makes software that enables virtualization and cloud computing.  It’s grown revenues every year of the past decade, and could well evolve into the Microsoft of the next decade.  In the latest quarter, revenues grew 48% while profit margins hit 21%.

So what do you do with these nine stocks?

Think for yourself.

This is in part an intellectual exercise.  In the ideal scenario, you buy them at an opportune time (even better, you already have profits in them), your profits compound over the years and you pass these stocks on to the next generation, thus escaping the bite of the taxman.

But even a shorter-term holding can work out very well, particularly when you follow a market timing strategy like that of the Cabot Market Letter, which has recommended many of these stocks. Click here for more details.

“As an employee of Delta Airlines, I would appreciate some comment on Delta’s stock. I think we are poised as ever for a great recovery.”

We’ve been writing about airline stocks a lot recently (I discussed U.S. Airways and Roy Ward discussed Alaska Air and SkyWest), but so far, Delta hasn’t come up. I decided to dig a little deeper and discovered Delta hasn’t been featured in any Cabot newsletters lately.

Delta is currently the world’s largest airline, but if the planned merger of UAL Corp. (parent company of United) and Continental goes through, that airline will become #1.

When I looked further into Delta (DAL), I found that the company reported its biggest quarterly profit in a decade in its the most recent fiscal report, out in July.

Delta reported net income of $467 million, or 55 cents per share, for the second quarter, versus a loss of $257 million, or 31 cents a share, in the year-ago period. And Delta’s overall revenue climbed 17%, to $8.2 billion.

The company also provided a positive forecast, with double-digit revenue gains predicted for the third quarter.

But …

Despite all that good news, Delta’s stock fell on huge volume the day earnings were reported. And fell again two days later on higher than normal volume.

Since then, the stock has stabilized somewhat, but it has been unable to recover to previous highs seen in the spring and early summer.

In fact, the drop surrounding earnings was part of a longer-term downtrend that’s been intact since the market soured earlier this summer.

U.S. Airways (LCC) also dipped with Delta in July, but took off like a rocket after it reported earnings a few days later. The stock has settled down with the market’s recent weakness, but is still rated Hold by Cabot Top Ten Weekly.

Airlines are still a difficult cyclical industry to invest in.

If you’re looking for a real growth-oriented investment in the travel sector, I recommend Home Inns & Hotel Management (HMIN), which is benefiting from the booming China travel market.

The stock has popped up in a number of Cabot’s newsletters, most recently in Cabot Top Ten Weekly where Editor Michael Cintolo wrote:

“This story couldn’t be simpler. Home Inns is the largest hotel chain in China, and it’s growing. In the second quarter, the company opened 36 hotels; to bring its total to 674 hotels in 126 cities in China. The average number of guest rooms per hotel was 116, and the hotels had an average occupancy rate of 96.4% in the quarter, up from 90.5% in the previous quarter. As the economic recovery progressed, management saw the opportunity to raise prices at mature locations, and the result was a knock-your-socks-off after-tax profit margin of 19.6%, far above anything seen in recent years. The company is virtually debt-free (unlike most U.S. hotel chains), and plans to stay that way as it grows, adding a total of roughly 200 hotels in 2010. We like it.

“HMIN came public in late 2006, topped at 50 soon after and then joined the broad market in a slide that ended at 7 in late 2008. Since then, the stock has been on the comeback trail. A week ago, it topped 44, and we think it looks attractive on the current pullback toward the 50-day moving average at 41.”

Click here to learn more about Home Inns and the other leading stocks featured in Cabot Top Ten Weekly.

If the introduction of the first iPhone, unveiled in January 2007, spurred you to buy the stock, you’re up about 160%. Since the unveiling of the iPad this January, shares are up 22%. IPads are selling so well, one industry analyst, iSuppli, projected in late July that Apple will have sold 100 million of the tablet PCs by the end of 2012. Apple sold 3.3 million of the iPads in the first quarter that they were in stores. It’s pretty clear Apple is on a winning streak, executing its business plan to near-perfection.

I like Apple as a stock, but what particularly interests me today is the fact that for Apple to execute so successfully, many other companies have to hit their marks as well.  As Editor of Cabot Green Investor, which invests in alternative energy and related stocks, I find it fascinating that many of the items used in the iPad are also playing a part in the transformation of our a fossil-fuel dependent society to a cleaner, more renewable one.  There are three stocks in particular that we can reasonably infer have some role in the iPad, although we can’t be certain because of Apple non-disclosure agreements with some suppliers.

One is Polypore (PPO), a North Carolina-based company that makes sophisticated filters and separators for use in lithium-ion batteries. According to analyst Craig Irwin at Wedbush Morgan, Polypore supplies the separators for the iPad’s li-ion battery (Polypore hasn’t confirmed this).  Irwin’s revelation last week gave shares of PPO about a 10% boost. Cabot Green Investor subscribers bought Polypore in June, making the Apple connection a welcome bonus to what we already saw as a compelling investment.

That’s because lithium-ion batteries are the next generation of batteries that will eventually all but eliminate the lead-acid battery we use in most applications today. Li-ion batteries can be more fully charged more often than lead-acid batteries, lose their charge more slowly when not in use and are generally much lighter for the power they can store than comparable lead acid batteries. In the iPad, li-ions offer over 10 hours of operation on one charge, by some accounts.

The real growth market for li-ion batteries is in automobiles, especially as electric cars like the Nissan Leaf and hybrids like the Chevrolet Volt roll out. Last fall, another brokerage, AT Kearney, estimated the market for li-ion batteries in automobiles was just $32 million in 2009, but will skyrocket 700-fold to $22 billion by 2015 and then $74 billion by next decade.

Polypore is a leading supplier of separators for lead-acid automobile batteries already, making the shift into the more sophisticated, higher margin li-ion business a natural transition. It also makes filters and separators for the food and beverage industry, membranes needed in the pharmaceutical industry and filters to remove waste products from blood. Lead acid batteries remain a growth area too, thanks to Asian industrial demand. Polypore easily beat Wall Street expectations in its latest quarter, reported two weeks ago, posting sales of $150.1 million and earnings per share of 33 cents. For the full year, we see sales rising as much as 20% to over $600 million, while posting $1.22 or more in per-share profit.

—

Market watchers speculate that another key component of the iPad actually got its start in the 1960s as a way to solve the problem of Ma Bell’s phone booth glass being shattered by vandals. That market fizzled, regular glass being much cheaper, but the product was revived when executives saw a market in the smart phone revolution.

The product is called Gorilla glass, and Corning (GLW), the venerable upstate New York firm that has been thriving on fiber optics and liquid crystal display glass, makes it. The story with Gorilla glass, true or not, is that in the early 1960s, one Corning executive quipped to another “The problem with glass is that it breaks.” The other replied in seriousness, “Why don’t you do something about that?”

The result was Chemcor, a glass that was hardened in a proprietary, environmentally friendly method developed by Corning that made it very hard to break, scratch or puncture. Back then, the company was so proud of it they sent films of scientists trying to break Chemcor glass to television stations around the country. But no one bought it.

Revived and tweaked and re-introduced to the market late last year under the more marketing-friendly name Gorilla glass, it can be produced to be thinner than a dime, while being resistant to cracking when dropped and not losing effectiveness after long periods of touch screen usage.

Corning so far has 19 customers for Gorilla glass, most of which it cannot name because of non-disclosure agreements and presumably Apple is in that group. We do know the popular Droid smart phone uses Gorilla glass, as well as Dell, Samsung (which also supplies some iPad components) and LG, among other companies.

Regardless of whether Apple uses Gorilla glass or some alternative, so far this year, Gorilla glass sales amounted to $250 million in the first two quarters for Corning. Many analysts, myself included, believe Gorilla glass can be a $1 billion business in 2011 thanks to both smart phones and touch screen markets, as well as a planned rollout of ultrathin, stylish flat panel televisions with what I think will be a compelling feature—because Gorilla glass is so tough, TVs will be made without frames.

Corning’s other businesses have been doing well too: LCD glass sales have held up better than anyone expected (and the Cabot Green Investor portfolio made a 15% profit on Corning last year having correctly seen that LCD TV sales were holding up); environmental products, primarily ceramic substrates, have grown strong double digits this year. To boot, for those with a strong inclination to Green stocks, Corning owns a chunk of Hemlock Semiconductor, one of the world’s largest suppliers of polysilicon, a primary solar panel material. Corning, at 17 a share, sports a price-to-earnings ratio of just 9, a bargain. My subscribers added it Friday.

—

My third iPad related stock is one for which there is little evidence it’s in the Apple supply chain, but there is no doubt it’s a leader in a crucial technology for the iPad and many other products—LEDs (or light-emitting diodes). The company is an Illinois firm called Rubicon Technology (RBCN). Rubicon is the primary supplier of sapphire substrate in the Western hemisphere.

Artificially grown sapphire is coveted as a base on which to build LED lights because it is very hard, second only to diamonds, and produces the brightest white, blue and green light. Sapphire also withstands very high heat and other extreme conditions while continuing to offer exceptional light clarity. The biotech and defense industries in particular prize sapphire LED lights. LEDs, as you’ve probably heard, are electricity-sipping lights that allow ultrathin products like the iPad, iPhone and others to have a reasonable battery life.

Overall, LEDs are expected to grow into a multi-billion-dollar market by decade’s end as everyone from carmakers to municipalities change over to LEDs from compact fluorescent lights (CFLs) and older light bulbs. Not only do LEDs use 60% to 80% less electricity than traditional lightbulbs, they can last 30 to 40 years, meaning cities save on labor costs of replacing bulbs.

Rubicon has a proprietary growth system for its sapphire (real sapphire is too flawed to use for LEDs) that grows six-inch and eight-inch wafers and is evolving toward 12-inch wafers too. Larger wafer sizes allow faster production of LEDs by providing more surface area, so while two- and four-inch wafers have been the industry standard, the industry is shifting to larger wafers. Right now, the market for sapphire is very tight and has allowed Rubicon to post excellent results.

Last week, Rubicon reported a 400% rise in second quarter sales over 2009, to $15.8 million, and an expectations-besting 18 cents a share net income.  The company also raised its guidance for the current quarter and stated it sees improving sapphire pricing power ahead. Shares have been sold down the past week on weakness in other LED industry stocks, but Rubicon shares have held up technically and we like that management has executed very well in a difficult environment. Whether or not its products are ending up in the iPad, Rubicon too is a buy.

Click here to learn more about Corning, Polypore and Rubicon as well as the other top stocks featured in Cabot Green Investor!

The company is AgFeed Industries (FEED), a Chinese pork-producing company that’s bringing advanced Western hog-raising techniques to China.

The background of the story is that 63% of the meat consumed in China is pork, amounting to about 63 pounds per person per year.  China harvested 625 million head of hogs last year.  (The U.S., despite my constant hunger for more bacon, consumed just 100 million head.)

AgFeed raises its pigs on two breeder farms, and has 31 producing farms.  Taken together, the hog producing side yielded 37% of last year’s revenues.

The other 63% of revenue came from the sale of the company’s premix, concentrate and complete hog feeds, which AgFeed markets through 1,400 retail stores to backyard farms, and 780 contracts with large commercial hog farms.

The quality of food is very important to Chinese consumers, and AgFeed considers its business plan to be a food safety story.  While efficiency increases are important—the company was founded by animal nutrition experts—it’s the production of high-quality, disease-free pork that can command a premium price that will make the difference in the company’s results in the long run. And management knows it.

FEED had a great four-month run in 2009 that rocketed the stock from penny status to within a few cents of 8.  But since that run, the stock has meandered its way down to below 3.  It’s not really an unappreciated stock (its P/E is still 15), but it needs to deliver better earnings than the 76% dip it reported in Q1.

The next quarterly report is scheduled for August 9, and a good report could provide the fuel for another blastoff.

And if the stock catches fire and begins to stage a strong rally, you might just read about it in Cabot China & Emerging Markets Report.