Monday, June 21, 2010

Bookkeeping: Restarting L&L Energy (LLEN)

There are a few stocks like Atheros Communications (ATHR) and L&L Energy (LLEN) which were hammered in the May selloff for no good reason.  Atheros still has not really recovered but L&: is showing signs of life.  This Chinese coal company offered great guidance for 2011 (their year end 2010 will happen in July) but the market didn't care one bit. [May 20, 2010: L&L Energy Announces Impressive Fiscal 2011 Guidance; Market Yawns]  I seriously considered buying this last week but decided to wait, which cost us some gains today.

The problem is this is a Chinese small cap so when risk is on, people will flood into it, when risk is off people flood out - very little to do with fundamentals which have only improved during the last few months.  So we're hostage buying stocks like this to the market mood.   As I wrote when I originally bought it [Apr 14, 2010: Bookkeeping - Starting L&L Energy]   

  1. It's a "small cap Chinese" name so can rise or drop 10% on any session for no particular reason
  2. I doubt the investor base is 'strong hands'.
  3. Unlike the US China is tightening monetary policy so any day there is worry about a slowdown in the Chinese economy the stock has a chance to be crushed.

You can see the last two Mondays as the market gapped up, so did the stock ... with volume popping.  The rest of the week it did nothing and then of course this morning another gap.

So while I feel like I am chasing, for $1.33 in earnings for 2011 (year end July 2011) this remains dirt cheap.  Since the stock is up so strongly today I am going to restart the position with a smallish 0.6% exposure and see if it can pull back as the market is overdue for some rest.  As long as it holds $9.80 or so it should be ok.  So go forward - add position size on a dip, but stop out if dip breaks support.

We exited May 5th at a price not too far from here, so I'll give it another whirl.

Long both names mentioned in fund; no personal position


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