Good morning.

I was cash in the Long-Term portfolio heading into the Brexit vote last Friday and now you can see why I played it safe, totally sitting out the biggest 2-day drop in the market this year.

Now I’m ready to put on another trade so let’s quickly review FNMA get right to business on today’s buy.

FNMA

I bought 10,000 at $2.03 Tuesday and plan to go the distance on this trade from here, boom or bust. FNMA shares currently trade less than one times earnings – a valuation typically reserved for companies in grave danger of bankruptcy. However, if the plaintiffs prevail and overturn the third amendment, currently preventing profits returning to the common-equity holders, FNMA shares are worth about $20.

KNDI 

Kandi Technologies Group, headquartered in Jinhua, Zhejiang Province, is engaged in the research and development, manufacturing and sales of various vehicle products. Kandi has established itself as one of China’s leading manufacturers of pure electric vehicle (“EV”) products (through its joint venture), EV parts and off-road vehicles

The Electric Vehicle sector is booming in China and supported by the government due to ecological reasons. There is even an expectation that EV sales in China will grow substantial and could even double the 2015 sales: http://goo.gl/Z3x0kR

This government view is confirmed by the Chinese market leader BYD http://goo.gl/55R0Ym

The Rational:

KNDI, the second biggest player in China, has a joint venture named JV Company with Geely to commercialize their vehicles. However in the first quarter of this year they sold ZERO cars due to an administrative error by the government. The cars of the joint venture where not on the newly list of cars qualified for purchase tax exemption. As a consequence you see the drop in share price on May 10th as investors didn’t like the uncertainty if they would get on the list and if the initial yearly target sales could be reached.

In the meantime, the 4 cars were added to the list in April and sales started to catch up. KNDI, via its joint venture JV Company, stated in its outlook that it expects to sell 5,500-6,000 EV products in the second quarter and a total of 35,000 or more EV products in the full year of 2016. From the most recent figures available in the market, JV sold in May +-2600 units which could lead to achieving the outlook targets for Q2 http://goo.gl/XiBsjq

As there is almost no news communicated by the company except on the earnings call, the price tends to react heavy after earnings calls. As good news will be communicated, the price should react positively.

The play is to accumulate shares in the $6 price range , preferable with a high of $6.75 and hold up until the earnings call begin August with a profit target of $8 giving a risk/reward ratio of 2 (potential gain of 2 for investing 1). Currently price is range bound within support of $6.50 and resistance around $7.50.

Trade green.

Jason Bond