Opinion on  American Oriental Bioengineering Inc (AOB)     Sector: Healthcare  >  Industry: Biotechnology & Drugs
AOB - American Oriental Bioengineering

Strong fundamentals held back by strong shorts in the recent months has given way…. the squeeze is on. The underlying fundamentals are finally supporting a break out. Outstanding recent quarterly announcement plus two acquisitions not factored into the EPS are in the midst of closing. They have completed one acquisition and have one to go adding approximately 21 million in revenue per year. The last acquisition is expected to close at the end of third quarter. AOB in past acquisitions have been able to triple the revenues of the acquired companies by pumping their products into their over 100,000 points of distribution in China. This Stock is currently undervalued even with a recent 30+% surge. The forward looking PE is at 13.81 and PEG well below 1.0 at 0.31, still at a bargain. Might need to wait for a pull back, but as AOB approaches their involvement in Credit Suisse Asian Technology Conference Sept 10th and 11th, this stock will move. The quarterly announcement details are below provided by “Standards and Poor’s Report”.

Jon’s Current position… got in at 8.53 and 8.03 for an average share price of 8.21 around Mid July 07′. Looking to hold position until January, would like to go the full year to avoid the tax but I have a feeling the Shorts will get a hold of this again in the 14-16$ per share range.

Current return as of 9/10/07 = 25.5%

Revenues for the six months ended June 30, 2007,

were $59.7 million vs. $41.8 million in the prioryear

period, advancing 43% year over year. The

gross margin widened on the higher revenues.

Selling, general & administrative expenses rose

52%, and operating income was $19.4 million, vs.

$13.4 million for last year. Income before taxes

was $19.6 million vs. $13.8 million, an increase of

42%. Income taxes were $3.5 million, against $3.1

million, and for the first two quarters of 2007, net

income was $16.1 million ($0.24 a share), vs. $10.7

million ($0.17 a share) in 2006.

In the second quarter, revenues were $33.9 million

vs. $22.8 million in the year-earlier period, an

increase of 49% year to year. The gross margin

widened on the higher revenues. Selling, general

& administrative expenses grew 47%, and operating

income for the quarter was $11.5 million, vs.

$7.0 million in the prior-year period. Income before

taxes was $11.6 million vs. $7.4 million, increasing

57%. Income taxes were $1.9 million,

against $1.6 million for last year, and net income

was $9.7 million ($0.15 a share), vs. $5.8 million

($0.09 a share) in the second quarter of 2006.

Welcome back to the Mayor’s Picks. The market was in for quite a ride yesterday. One of the best days in recent history. The S&P was up almost 3%, which is incredibly high. But high valuations make a Mayor like me nervous. I’m much more comfortable knowing the stocks I’m buying are low. It’s hard to say stocks are low right now but they are still going up.

Performance for last month’s picks were solid with a great showing from Las Vegas Sands (LVS). The challenge is harder now as I look for bargains in a rising market. My returns for the last twelve months are below along with the picks for this month.

1 Month Return +5.05%, S&P +3.81%

2 Month Return +2.15%

3 Month Return -0.69%

4 Month Return +12.17%

5 Month Return +15.84%

6 Month Return +22.06%

7 Month Return +10.13%

8 Month Return +13.97%

9 Month Return +9.31%

10 Month Return +20.21%

11 Month Return +19.87%

12 Month Return +29.74%, S&P +15.46%

STOCK SYMBOL (Current Price, Monthly % Change) - Rating - Comments

AAPL (140.92, +6.35%) - Buy - Apple is still growing in computers and iPods but the profits will spike when iPhone sales hit. Some carriers are giving as much as 40% of their monthly fees to Apple for the rights to the iPhone. This means a $400 sale price plus $10-20/month for Apple. Profits should be $400+ per phone sold over it’s two year life. If they sell 10 million per year that’s $4 billion in profits. Believe it.

PRTY.L (23.75, -9.52%) - Buy - Online gaming will continue it’s growth and this will be a great stock, just think long term.

LVS (131.65, +32.48%) - Buy - Great performance in the last month but long term this stock will continue to go up. Macau will be huge along with Singapore and Las Vegas. Great management team just knows how to make money.

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BAC (51.21, -0.85%) - Buy - Financial stocks have been hit hard and will continue to but BAC pays a 5.6% dividend and has a huge retail presence. This stock won’t outgrow smaller more nimble companies but it’s a solid base to any portfolio.

BRK-B (3952.00, +0.33%) - Buy - Berkshire is another foundation company. I can’t believe their value has stayed low so long. A bounce will come as investors look to safer stocks.

QSII (34.51, -11.08%) - Buy - Quality Systems makes medical and dental software for managing information. This is a growing field and no company is growing faster or has better profitability than QSII. Forward P/E under 20 gives them a reasonable valuation right now.

AOB (10.36) - Buy - American Oriental Bioengineering was brought into Main Street by my guest writer this month and I’m buying into their growth strategy. They sell plant based medicine in the Orient and have shown strong growth and profitability. As this area becomes more westernized the industry should grow at a rapid pace.