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We Told You So! A One-Day Gain of 42%

Traveling, Travelling and more Travelling:

As many of you know, I was in Las Vegas last week speaking at The Money Show. I met a lot of great people. Many of you singed up for a free report China's Top 2 Gaming Stocks, and I hope that you find that report a great addition to your investment research.

As soon as I was finished speaking in Las Vegas, I was off to Philadelphia to a Rainmaker conference. Philadelphia is a great city with many ties to our country's fight for freedom. I take pride in continuing the fight for the individual financial freedom of my subscribers and clients.

BTW, we are picking up the new puppy this week! I caved in on a great choice and will be sharing pictures soon!

We Told You So! A One-Day Gain of 42%

We said it was undervalued and so it was. WuXi PharmaTech {WX, a China-based biotech research and development company rocketed up more than forty-two percent in a single day’s trading last Friday after a very “surprising” first quarter report.

With its stunning climb on U.S. exchanges, WuXi’s market cap leapt by more than $200 million to an amount in excess of half-a-billion dollars. Sadly, for those who didn’t purchase shares of WuXi when we put out our buy recommendation on May 5th, the company is now trading well above our former “buy-up-to” price.

Market analysts had lowered their expectations for WuXi, and that’s what made it such a cheap stock in our eyes when we gave the buy signal. On May 15th, just ten days after our buy signal WuXi PharmaTech announced a 5% increase in first quarter revenues. The bad news was that net income fell 15% and earnings per share dropped 22% during the quarter, compared to the same quarter in 2008.

But, the Shanghai-based company's income attributed to shareholders was double the amount that analysts had expected. Wuxi’s first quarter net income declined to $0.16 per ADS to $0.19 per ADS in the same quarter of last year. But analysts polled by Thomson Reuters had expected the company to earn only $0.08 per share for the quarter. That’s why the stock had been badly undervalued before the earnings announcement.

A day after the surprise earnings announcement the market turned against WuXi once again and we at the China Stock Digest decided to claim our profits very quickly before the market decided to take them back.

What was the danger? WuXi says most aspects of its business are booming considering the recessionary global economic environment. Stressing the positive, WuXi announced that its core business, US-based and China-based laboratory services revenues, rose by a healthy 33%. Total laboratory service revenues jumped to $56.6 million in the first quarter from $42.52 million in the prior-year

But the downside was in WuXi’s idle contract manufacturing operations and we can see no light at the end of the tunnel in this part of WuXi’s business. Wuxi manufacturing revenues plummeted by a head-turning 81%.

Looking to the future, WuXi has re-confirmed 2009 revenue guidance. The company says, “We remain on target to achieve our 2009 financial guidance, including 15-20% revenue growth in China-based Laboratory Services”. That is expected to result in revenues for this year of $265 to $275 million, despite the continued weakness in contract manufacturing.

This ongoing weakness in manufacturing is what caused the quick erosion of WuXi’s valuation on the market. With a key segment of the company’s business weighed down by uncertainty, we decided to move quickly and take one of the quickest profits in the history of the China Stock Digest.

With gains of more than 20% on the table and the tide beginning to turn rapidly, we decided that a quick profit was the better part of valor.

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Jim Trippon
China Stock Digest