The media and many analysts have painted China as the Great Depression reborn.  You would think China is in such a mess right now, hell has actually frozen over.  I love the panic and fear as some China small caps are now sparkling like diamonds in the rough.  Many Chinese small caps are trading at price to earnings ratios of three to five.  That is based on 2010 earnings.  I am starting to seriously salivate over these low priced stocks as a longer term hold of six months or more.  Even if some of these were to make only half the money they are expected to this year, they would still trade at a six to ten price to earnings ratio.  Let’s keep in mind, that is with a growth around twenty percent with some higher!  Absolutely nuts in my humble opinion.

Let’s take a look at some of these.

China Security & Surveillance Tech. Inc. (NYSE:CSR) is currently trading at $4.70.  According to Yahoo, analysts estimates for 2010 are $1.13 per share. That is a 2010 price to earnings ratio of just 4.15.  2011 earnings projections are for $1.31.  This puts the price to earnings ratio for 2011 at 3.59.

Telestone Technologies Corporation (NASDAQ:TSTC) is currently trading at $8.14.  According to Yahoo, analysts estimates for 2010 are $1.95 per share.  This puts the price to earnings ratio at 4.17. 2011 earnings are expected to be $2.57 per share.  This would put the price to earnings ratio at 3.17.

Zoom Technologies, Inc. (NASDAQ:ZOOM) is currently trading at $4.79.  This is down from  a high in March of $8.95.  According to Yahoo, analysts estimates for 2010 are $1.04.  This puts the current price to earnings ratio at 4.61.  2011 estimates show up at $1.24, meanings the price to earnings would drop to 3.86.  Next years growth is estimated at around 20%.

Bottom line is this. While hell froze over in China in regards to the small caps, this may offer a beautiful opportunity to accumulate some of these profitable plays.  Even making half of what they will make this year with this type of growth is still semi attractive.  Are things really that bad in China?  I highly doubt it and China will most likely lead the world out of this mess down the line.

Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com