Weekly Stock Pick

My weekly stock pick comes from a play on China. I love the China growth story just as much as anyone, but when the trader in me sees fear and greed going on in the markets I take notice. I see greed on the following stock near term as I will explain below. I do consider this pick a buy longer term, but near term, I’m looking for it to sell off before major buying support comes in for longer term investors.

Short Sell: Home Inns & Hotels. Ticker HMIN

HMIN Trade Setup

Sell-Stop Entry at $25.43 with Fairly Tight Stop-Loss at $26.50

Or Sell Limit Entry at $27.26 with Stop-Loss at $29.50

Another possible scenario could see prices of $29.23 to $30.20 before the possible correction I’m anticipating unfolds. Major support now sits at $23.59 to $22.80. A break of this level would indicate a sell signal. If the price holds at $23.59 or higher, this could mean higher prices are on the way.

Take Profit Areas: $23.41 to $22.40, $17.83 - $16.67

I would be looking to buy if and when HMIN price goes below $20.00.

March 4th HMIN gapped down to a close of $24.51 with the share price hitting a low on March 19th of $17.79. The gap has been filled now with May 16th closing price at $26.15.

This could mean two things.

The price could keep heading up to my other possible scenario or a low risk high reward trade to short sell is now setting up based on my analysis above. A correction below the recent low of $17.79 would be a nice long entry position after cleaning out any further weak hands on this stock.

Home Inns & Hotels Management Inc. is a China-based economy hotel chain. The Company develops and operates economy hotels across China under its Home Inn brand. The Company either leases real estate properties, on which it develops and operates hotels or it franchises its brand to hotel owners or manages these hotel properties. The Company refers to the former type of hotels as leased-and-operated hotels and to the latter type of hotels as franchised-and-managed hotels. As of December 31, 2007, the Company’s Home Inns Hotel chain consisted of 195 leased-and-operated hotels in operation with an additional 78 leased-and-operated hotels under development and 71 franchised-and-managed hotels in operation with an additional 37 franchised-and-managed hotels under development, covering 82 cities in China.

A main bullish topic about Home Inns & Hotels is that it will be a beneficiary of the Beijing Olympics. Conventional wisdom would agree. In reality currently, it may not have much effect as Home Inns & Hotels is already filling up its room’s, with an average of almost 90% occupancy. The month during Olympics rooms could see 100% occupancy, and that's not very far from where current occupancy is right now. So tell me where more earnings are coming from near term to support a Price Earnings Ratio on this stock at 195.

I also think HMIN stock price will continue heading south because of currency losses as the dollar has tanked even more since the 4th quarter 2007. Also more and more Chinese hotel operators are spending substantial amounts of money into expansion and not into shareholders equity and the company bottom line EPS. Home Inns is an excellent investment longer term, but I don’t see sustainable growth in the short term. So my reasoning for this short sell.

Home Inns Takes Loss in 1st Quarter 2008.

The Shanghai, China-based Home Inns first quarter had a net loss of RMB 50.29 million or RMB 0.71 per share, compared to a net income of RMB 2.96 million or RMB 0.04 per share in the year-ago quarter.

First quarter adjusted net profit was RMB 3.8 million, excluding share-based compensation expenses of RMB 4.0 million, foreign exchange losses of RMB 50.0 million. Loss per ADS was RMB 1.42. Excluding share-based compensation expenses and foreign exchange losses, non-GAAP adjusted earnings per ADS were RMB 0.10.

Net revenues for the quarter increased to RMB 334.85 million from RMB 172.58 million in the comparable quarter of the previous year. Total operating costs and expenses increased to RMB 342.67 million from RMB 156.67 million a year ago.

As of March 31, 2008, Home Inns had an additional 131 hotels under development, which comprised 86 leased-and-operated hotels and 45 franchised-and-managed hotels. During the first quarter, the occupancy rate declined to 81.4% from 85.9% in the same quarter of the prior year.

Home Inns Outlook for Second Quarter 2008

Looking ahead, Home Inns expects to open about 200 new hotels in 2008 and anticipates its fiscal 2008-second quarter total revenues in the range of RMB 440 million or US$62.8 million - RMB 460 million or US$65.7 million.

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Good day, good investing and trading!