China online gaming: Vardy votes for Shanda (SNDA)

"Shanda already has 7.2 million paying users involved in its cutting-edge MMORPG (massively multiplayer online role-playing games). That's up more than 22% sequentially from the fourth quarter.

"China continues to be a hotbed for online gaming and, with the growth in active gaming from the under-18 and over-40 crowd, China is on track to overtake the United States as the largest online gaming market in the world by the end of 2009.

"Second, unlike many other online companies, Shanda is actually making money. Last week, Shanda announced better than expected financial results.

"Revenue rose 42% to $162 million, and earnings on a per-share basis rose 35% to $0.78 per ADS (American depositary share), topping the consensus by 8.3%.

"More importantly, next year's estimates climbed to $3.53 per share, putting Shanda on a forward P/E of 17.6 -- more than reasonable for a company growing at the rate it is.

"Here's a word of warning. Shanda combines three volatile elements. It is Nasdaq listed, a China play, and a small cap stock all rolled into one.

"That means potential for stellar returns, but at the cost of gut-wrenching volatility. As a momentum play, it also has the potential for sharp sell-offs. So you may want to take a smaller position than usual on this one."

Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.