-Executive Summary-

• Just as yesterday, investors and traders are enjoying the holidays – away from Wall Street.  Volume is low.
• SMC holding China Shen Zhou Mining and Resources, Inc. (Ticker: SHZ) EXPLODED +70% HIGHER today.  See more below.
• SMC holding Bank of Ireland (IRE) tacked on another +10% today.  See more below.

This Stock Market Companion 15MinuteStocks Market Update is a powerful tool designed to help you make money in the stock market.  It requires just a few minutes a day, provides an essential link to the markets, and prepares you to be ready for actionable ideas.  We show you when/where we put our own money to work… and when/where we take our profits/losses.  Please see our short (2 minute) website videos for more information.

– Markets “At a Glance” –

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

– Market Trends –

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

– Market Perspectives –

For your added perspective, we’ve included these two different views of the broader market –

1. SMC SP-500 ETF Daily Chart (Click to open helpful chart in a separate browser window).

2. SMC SP-500 Weekly Chart (Spanning back through 2007)

– Today’s Highlights –

Volume on the exchanges has continued to dry-up as this holiday week progresses and as workers clear snow from recent New York blizzard.

The markets were basically flat and there are no particular market highlights to report today.

– Story-Stock Investing –

Stock Market Companion holding Bank of Ireland (Ticker: IRE) advanced nicely today to land back slightly ABOVE its price on December 22nd – the eve of Ireland’s latest infusion of capital at Allied Irish Banks (AIB).  The volume today was very good.  This is a very encouraging sign for us.  Additionally, the divergence between IRE and AIB stock performance continued as is necessary for our SMC investment premise to continue to have any merit.  Today, IRE advanced +10.8%.  AIB stock diminished -3% in value.  In other words, this is not a “rising tide that lifts all boats” condition in Ireland.   Investors appear – at least at this moment – to be targeting investment in the Bank of Ireland.  If we did not already have such a significant holding in IRE stock, and IF we were looking to add more or build a new position, then a move above $2.70/share on volume would probably get us on board at the SMC.

Today’s REMARKABLE +68% surge in value of Stock Market Companion holding China Shen Zhou Mining and Resources, Inc. (Ticker: SHZ) stock has left many market participants stunned.  At the Stock Market Companion we are simply glad that we were able to identify the opportunity clearly for our subscribers with our Stock Market Companion Intra-Day Alert yesterday and show where we had invested our own money.  While we believed the stock had clear upside potential, there was no indication that the stock would jump so tremendously within 24 hours.

Today we transmitted these two SMC Intra-Day Alerts to assist in clarifying what we saw with the stock –

Dear Subscriber-Friend –

Shazam! for SHZ = China Shen Zhou Mining and Resources, Inc. (Ticker: SHZ).  The stock is now up over +40% from it’s close yesterday at $5.50/share!  That is a HUGE move in an extremely short period of time.  That’s a lot of fun for those SMC subscribers who own the stock.  The important question now is … Now what?

Let’s start with the numbers that we know –

1. The company is tiny.  This year’s revenue is expected to be $14.5 million; next year’s revenue expectation = $38 million.
2. The company has BIG growth.  $14.5 to $38 million growth in revenue = +162%.  In other words, this year’s revenue MAY almost triple by the end of next year.
3. Net income for 2011 is expected to be approx. $11 million.
4. There are approx. 28 million shares outstanding, of which 89% are not available for the public.  Shares available to the public may only be 2.5 million shares.  Friends, that falls in the extremely scarce category.  Of course this number can change dramatically at any time based on what the insider shareholders do.
5. Let’s take next year’s expected net income of $11 million and for simplicity sake call it net earnings.  Therefore $11 million / 28 million shares = $0.39/share earnings.  At yesterday’s closing price of $5.50/share, this company was selling at $5.50/0.39 = 14.1 times earnings.   In other words, its price/earnings ratio (P/E) based on these numbers that we have to work with appears to be 14.1 (yesterday).  The market average here in America is approx. a P/E of 16.  Therefore the stock was selling yesterday at a good discount to the market.  At today’s momentary price of $7.60/share, the P/E has now advanced to 19.5 = a premium to the market.
6. Companies that have +162% revenue growth rates are “allowed” to sell at a premium to the market.  Sometimes this premium can be huge.  As a rule of thumb, some investors say that as long as the growth rate exceeds the P/E ratio, then the stock price may be ok.  Obviously in this case, this is a bit absurd.  To be more realistic, let’s look at what the price of the stock would have to be if it had a P/E of 30.  30×0.39= $11.70/share.  If for some reason the P/E went to 50, then the stock price would be $19.50.
7. At the beginning of January this year, the stock closed at $0.94/share.  As we write this, the stock is currently at $7.67/share.  That’s a 715% return for some shareholders in this one year.  Some people are going to soon want to capture these profits by selling their stock. From a different perspective, from our data it appears that this stock opened on approx. 2/25/2008 on the AMEX and closed that day at $9.04/share.  At $7.67/share, the stock is still -15% off its highs in 2008 and has another +17.8% more to go before it comes to that value.
8. Here are some points that make this stock unusual…
   Unusual in this case is the fact that such few shares are available to purchase.  Additionally unusual is the fact that this company is so tiny and doing business in such a remote corner of the world, yet available for sale to the investing public on the American Stock Exchange.  As an American Stock Exchange company, we have no other choice than to rely on the company’s financials and consider that they must be at least reasonably accurate.

   Let’s add into the mix the idea that China is ratcheting down mining output.  Prices – in this case for fluorite have recently doubled.  Let’s add the idea that we are at the end of the year and very occasionally there are stocks that go “silly” in the absence of the normal checks and balances of a marketplace with full attendance of the investors and traders.

   All of these things point to a convergence of unusual conditions that is resulting in this stock going ballistic.

9. Strategically and from a matter of principle it’s important for the SMC as a shareholder to make sure that we set stops along the way that allow us to capture gains, yet give the stock room to breathe.  For us personally, we are willing to give this stock down to $6.50/share. We have our stop set just below that number.  As an common stock investor, one of our primary objectives is to do all we can to make sure that we avoid turning a profitable position into a loss.  That’s why we use stops.
10. So far today, we like how the stock has shot higher, AND there hasn’t yet been a huge number of sellers immediately driving the stock below $7/share.  This could change at any time.  Yesterday we wrote, “It’s shares outstanding at approx. 28 million puts it in our experience in a categorical “sweet spot”.  It can really move UP when investors get behind it AND it can sink like the Titanic when investors decide to cash in their profits.”.  When sellers do come to take their profits, on this stock it will feel like the sky is falling.

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