Fushi International (FSIN – Nasdaq)

Dear Bottarelli Research Member,

The markets have recovered strongly from their oversold levels in November, which leads me to believe that the bulls have once again taken control of the market As a result, it looks like December and January will be strong months — and this makes me confident that today’s newest pick will hand us strong returns by Q1 2008.

The company you’ll discover today is involved in a new variety of copper wire. This specialized product is being described as a “superconductor” with the ability to carry 100% more electricity than standard copper wires. As you can imagine, this will be extremely critical for China’s booming demand for power — both on the commercial and residential side. In fact, as I was researching this company over the weekend, it became clear that the insatiable demand for this company’s product in countries like Korea, Singapore, Taiwan, and China will turn this week’s small-cap play into another huge winner for us. They’re also a global manufacturing leader in “bimetallic wire,” which is used by a laundry list of telecommunication, automotive, utility, and industrial products (that Bryan will outline for you below).

Leading into 2008, guys like Jimmy Rodgers are once again reiterating their bullish position on commodities, sparked by the “modern-century Industrial Revolution” occurring right now in the Pacific Rim. Considering this company could single-handedly offer the next-generation of bimetallic wire to an entire continent, you’ll agree that this stock is screaming louder than a thumb being hit with a hammer.

I’ll turn things over to Bryan in just a moment, but in terms of profit expectations, I fully expect this stock to double from current levels over the next 3-6 months. The company is called Fushi International (FSIN — NASDAQ), and I’d like to add shares anywhere under $20.00. In fact, as I look at the chart, I wouldn’t be surprised to see a gain ranging from 30% to 50% by mid-January.

SELL RECOMMENDATIONS

Solarfun Power Holdings (SOLF – NASDAQ): BLASTOFF! As amazing as it sounds, we’ve witnessed a 176% gain in les than 2 weeks time. Wowza! I’m as happy as a kid in the candy store, so congrats on this early Christmas gift. At these high levels, I’d like you to lock in profits on all but 25% of your position. That way, you can take profits while still holding a small amount of shares for continued upside. Lock in your gains now!

ION Geophysical Corporation (IO – NYSE): Although we’re showing a small profit on this one, the shares are simply not moving up as much as I would expect. We’ve given this one plenty of time, but shares continue to under perform. Therefore, let’s free up some cash and move on. Sell.

Melco PBL Entertainment (MPEL – NASDAQ): We have already taken a 50% profit on half of our position, leaving us holding the remaining half open. We’re currently showing a 27.5% gain on this second half, and although it appears like MPEL wants to run up again, let’s go ahead and lock in profits on the remainder. Sell the second half of your MPEL position now.

UPDATES

Torrent Energy (TREN.OB): They’ve finally received the necessary water disposal permits, which now allows them to move forward with the first ever CBM play in Coos Bay, Oregon. One morning very soon, we’re all going to wake up to some very big news on this little gem, so let’s continue holding.

Pude Coal (PUDC.OB): With China building more and more coal-fired electric plants, I continue to believe that PUDC is a position worth holding. Not only does PUDC supply coal to electricity plants, but they also represent nearly 50% of China’s coking coal market (used for making steel). At these levels, I’m adding to my position on the cheap. I suggest you do the same.

Star Maritime Acquisition (SEA – AMEX): Please make note that SEA has changed its ticker to SBLK and now trades on the NASDAQ under the name of Star Bulk Carriers. Trading on this new symbol began on Monday, December 3^rd. What happened is that SEA has done a merger, and to my eyes, a very good one. Star Bulk Carriers is a dry bulk company specializing in cargoes that include iron ore, coal, grain, cement, and fertilizer. They just added another ship, which brings their total to nine. I’m still bullish, especially with their new NASDAQ exposure, so be sure to adjust the symbol to SBLK in your small-cap directory and continue holding for further upside.

Have a great week!

Sincerely,

In 2005, the Total Global Market for Bimetallic Cable was 280,000 Tons. By 2008, the Demand for Bimetallic Wire IN CHINA ALONE is Expected to be 290,000 Tons.

Fushi International (FSIN – NASDAQ) is the largest domestic manufacturer and supplier of bimetallic composite products in the People’s Republic of China.

The benefit of bimetallic products is that they use the strength and mechanical ruggedness of two core base metals, copper and aluminum, to offer better conductivity and corrosion-resistance — all for a price that’s cheaper than standard copper wires.

Considering the spectacular surge in copper prices over the past two years, the decision to switch over to FSIN’s bimetallic products is a no-brainer. In just a moment, I’ll tell you about the incredible global demand for bimetallic composite products, and you’ll see that it’s just now starting. But first, let’s take a closer look at Fushi International’s primary bimetallic composite wire product: Copper Clad Aluminum (CCA).

CCA is the company’s core product. It combines the conductivity and corrosion resistance of copper with the light weight and low cost of aluminum, making this combination a cost-effective substitute for single copper wire in a wide variety of applications.

As you can see from the image, Copper-Clad Aluminum consists of a bimetallic wire with an aluminum core, which is then wrapped with T2 pure copper external cladding. This combines the lightweight, high flexibility, and low cost of aluminum with the conductivity and corrosion resistance of copper — resulting in a wire that delivers supreme performance at a reduced cost.

The wire’s lightweight aluminum core is bonded to an outer copper strip, and the combination of these two metals has unlimited potential in a range of applications. In fact, it can outperform in almost any sector where solid copper wire is currently used, offering increased value and flexibility with no sacrifice in performance.

Even more, Fushi’s facility in Dalian, China has developed the capability to draw bimetallic wire down to diameters as small as 0.03 millimeters. That’s one-fifth the size of an average human hair.

So as you can see, their product is far superior to standard copper wires. I’ll list the full line of applications below, but the primary uses are found in coaxial cable for cable television (CATV), signal transmission lines for telecommunications networks, distribution lines for electricity, and building wire used in various utility, appliance, and automotive industries.

It’s comforting to know that the top two consumers for Fushi’s products are cable television and telecommunications companies — which are two mammoth industries that will drive record high demand on a worldwide scale.In fact, if you quickly skim through all of the applications below, you’ll realize the full spectrum for Fushi’s bimetallic wires:

FULL APPLICATION LIST

• Telecommunications: CATV,coaxial wires, antenna wires, and composite cables .
• Telephone: Drop wires, telephone conductors.
• Electric Utilities: Transmission lines, buried counterpoise wires, structure ground leads, switch yards and substations, substation ground grid wires, and fence and structure grounds.
• Distribution Lines: Pole ground wires, transformer grounds, and surge arrestor down leads.
• Generation Plants: Building lightning protection, building ground wires.
• Industrial: Drop wires, magnet wires, transformer windings, building wires, automotive wiring harnesses, and battery cables.
• Electronics: Substation ground grid wires, fence and structure grounds, coax center conductor for LANs, electronic components, lead wire for transistors, resistors, capacitors, and radio frequency shielding.
• Transit: Substation ground grid wires, fence and structure grounds, catenaries messenger wires, grounding wire, and guy wires.

I admit, when you think of copper wires, they don’t appear to be a strong investment play. But when you consider all of their applications from the list above, it’s clear that they’re an essential component for most of today’s telephone, electronic, and industrial sectors. When the users of standard copper wire begin to realize the amazing benefits of Fushi’s bimetallic wires, you’ll see unprecedented levels of demand. That’s why I feel that Fushi is still in the very early stages of global growth.

Consider this: Over the last five consecutive years, China has been the largest copper consumer in the world. More than 70% of their total copper consumption goes towards wires and cables (particularly for their power industry). To offset the volatile commodity pricing of copper, China has incredible motivation to increase the use of bimetallic wires across multiple markets, and this alone would offer a massive boost to Fushi’s share price.

In 2006, for example, China represented approximately 47% of the worldwide market for bimetallic composite wires, or approximately 70,000 tons. By the end of 2008, China is expected to increase to 290,000 annual tons.

Think about that for a moment.

The total world market in bimetallic cables in 2005 was 280,000 tons. In 2008, China alone is expected to consume 290,000 tons. In two short years, the demand for bimetallic cables in China has surpassed the entire global demand. Amazing!

Make no mistake: That’s exploding growth, and since Fushi is a major player in the domestic bimetallic composite wire market, accounting for 16.7% of domestic sales and 18% of domestic production in 2006, they’re in the prime position to capitalize on this continued demand.

And it gets even better…

According to the Optical and Electronic Cable Association, 20% of the current cable and power transmission lines served by copper wires in China will be replaced by bimetallic in the next five years. Based on those findings, there’s no question that demand for Fushi’s wires will continue well into 2010!

In fact, if you look at the rate at which Fushi is ramping up production, the investment opportunity becomes quite clear. Just look at the production growth for yourself:

• In FY 2004, Fushi produced a total of 4,468 tons in bimetallic products.
• In FY 2005, Fushi produced a total of 8,111 tons of bimetallic products.
• In FY 2006, Fushi produced a total of 11,701 tons of bimetallic products.

And in the first quarter of 2007, Fushi produced 3,408 tons of bimetallic products — putting them on pace to produce a total of 13,632 tons in FY 2007. All told, that’s a 205% increase from 2004’s numbers!

With demand growing at an exponential rate, Fushi just announced (on November 26^th) a $3.2 million investment in new machinery for their Copperweld facility in Fayetteville, Tennessee. This new equipment will boost Copperweld’s ability to manufacture a wide array of finished goods, and also allow them to discontinue outsourcing certain phases of their production (thus lowering their total production costs).

By the end of 2007, Fushi anticipates that it will be operating 40 production lines with a capacity of 24,000 annual tons. And that’s just he beginning. You see, Fushi still has over 500,000 square feet of factory space, which means that their facility can accommodate up to 100 production lines!

So the bottom line is this: The global demand for bimetallic wires is certainly there, and Fushi is ready to meet this demand head on.

What will that do to their forward earnings?

Well, according to fiscal year 2007 forecasts, the company expects earnings to come in around $0.86 to $0.96 per share. And looking out to 2008, Fushi expects earnings to come in around $1.50 to $1.60 per share. Even at the low-end target range, that’s a 74% year-over-year increase!

What’s more, their current financial statistics are absolutely sparkling.

On a year-over-year basis, their quarterly earnings growth has increased 473.80%, which amounted to quarterly revenue growth of 147.10%. Because of these impressive numbers, the stock has increased 266% over the last 52 weeks! But despite this strong advance, it still carries a market cap of only 473.66 million. That means the stock still has a lot of room to move higher.

Not only that, but their income statement shows $100.95 million in revenue, which amounts to $4.79 per share. And their balance sheet shows $46 million in cash versus $82,000 in debt, amounting to $1.82 in total cash per share. With profit margins of 25.37%, the stock’s $19.00 share price looks extremely attractive. Heck, their forward P/E ratio of 12.14 makes the stock an absolute steal at these levels.

Guys, it doesn’t get much better than this. The demand is booming. The stock’s financials are extremely strong. And yet the stock is still very, very cheap. Something is bound to give, and this could quickly lead to a re-rating of Fushi’s shares. So let’s get positioned now, in advance of this re-rating, and profit as the company continues to experience unprecedented demand for their bimetallic composite products.

As Mark mentioned above, we could witness a 30% to 50% gain by January, and based on my analysis, I couldn’t agree more. Therefore, let’s add shares to our small-cap ledger now!

PLAY: Buy shares of Fushi International (FSIN – NASDAQ) at or under $20.00, good for the week.

Sincerely,