Confidence in this Stock Defies Market Odds

Jan 15
08:20

2009

Michael Lombardi

Michael Lombardi

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The current environment is fraught with high risk, as earnings season is just around the corner. Right now, it's pre-announcement season and usually o...

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The current environment is fraught with high risk,Confidence in this Stock Defies Market Odds Articles as earnings season is just around the corner. Right now, it's pre-announcement season and usually only those companies with bad news issue revised guidance.

I wrote before that, despite the strength of the bear market rally during the month of December, it's likely that the main stock market averages will retest their November lows.

Recently, a company I wrote about in this column issued a press release saying that, due to general economic weakness, it wouldn't be able to meet previous guidance. After a very brief selloff, the stock actually went up thereafter. That is a real oddity in this market.

The company I'm referring to is A-Power Energy Generation Systems (NASDAQ/APWR). This burgeoning micro-cap helps design and build small power grids for industry and small communities in China. The company is now also selling large-scale wind power generating systems.

A-Power issued a press release saying that, for the 2008 fourth quarter, its revenues would be approximately seventy-six million dollars and net income would be approximately $5.0 million. Previous guidance was for revenues to be one hundred and fifty-eight million dollars and net income to be fifteen and a half million dollars.

That's a really big difference and, not surprisingly, the stock sold off on the news -- but only for just one day. Then it came back strong, the day after the selloff. When this happens, you know a company's getting a strong institutional following.

Investors must have been looking for a new entry point. Just recently, the company announced that GE Drivetrain Technologies had agreed to supply A-Power with some 900 wind turbine gearboxes. GE will also become a joint venture partner with A-Power to build and operate a wind turbine gearbox assembly plant in China. That's a serious vote of confidence for a micro-cap company.

A-Power's stock price is back up again and everything seems right as rain. A-Power is the only stock in the current marketplace that I've watched go up in value the day after issuing revised guidance. I suppose that's another big vote of confidence.

So, don't be surprised if we get more downside in the equity market over the next few weeks. We're not out of the woods yet. Far from it.

Profit Confidential

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