The Next 5 Stocks to Buy?

There may be some who think the China card is played out or still a bubble in the making, but the economy there -- even if it has cooled slightly -- will still be growing.

According to a report by Renmin University of China and Donghai Securities, China's economy grew by 11.9% last year, the fifth straight year of double-digit increases, and it is expected to grow by more than 10% in 2008. It isn't from internal problems that growth will slacken -- if 10% growth can be called weakening -- but rather primarily because of slowdowns in other countries' economies.

That slowdown doesn't seem to be affecting General Steel (NYSE:GSI), a diversified Chinese producer of steel products. It has been growing through a steady diet of acquisitions. It feeds sundry industries such as agriculture, construction, and energy. 

From hot-rolled carbon and steel sheets used to build agricultural equipment to spiral-weld steel pipes for the petrochemical industries, General Steel also has an iron ore and coke production facility to develop rebar used in construction. In the Chinese markets where it operates, the steel maker estimates it has anywhere from 50% to 70% of market share.

Moreover, the devastating earthquake that rocked China last month has created a demand for more steel for temporary structures for individuals, and it is reported that one of General Steel's joint ventures will provide much of the material for them.

Screening for likability
General Steel showed up on a screen of companies that have enjoyed growing investor support these days after starting off the year on the outs. General Steel jumped from a two-star (out of five) Motley Fool CAPS rating in January to four stars today, while also enjoying a valuation below that of the market.

CAPS is a 110,000-member investor community that rates whether stocks will outperform or underperform the market -- thousands of stocks. While not a predictive service, in its first year of operation the trailing returns of the stocks in the CAPS universe correlated precisely with their relative CAPS ranking. Top-rated four- and five- star stocks outperformed low-rated one- and two-star stocks.

Here are a few of the other companies the CAPS screener found that are now enjoying significant investor support:

Source: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.
*For next fiscal year.

Please understand, this is not a list of stocks to buy and sell, but rather a starting point for further analysis. Investors have raised their outlook significantly on these companies, which could mean there is still room to move.

A fine mesh filter
General Steel still has to contend with competition from various state-owned steel operations as well as potential changes to the rules imposed by the government. Steel's also a cyclical business, and China has at times suffered from overproduction. CAPS investor slscoder3 likes that it is a relatively unknown company to much of the market because of its small-cap valuation.

One of the few direct steel company investments in China. Strong revenue/earnings growth. Somewhat undiscovered with 225 mil market cap (also why it is somewhat volatile).

ImInDaMoney notes there is a high level of international demand for steel from China -- exports in May hit their highest monthly level since July 2007, rising 16% from April. 

Take a CAPS bow
There are many ways to screen for stocks to beat the market. You can use the new CAPS screener to find other stocks to buy, but if you want to see what other stocks CAPS investors are giving four and five stars, head over to Motley Fool CAPS now -- it's completely free to join.