General Steel (GSI): Contrarian Play in China

"As part of the restructuring, Beijing recently announced plans to do away with export rebates on several steel products. While that news will probably spell doom for many of China's smaller producers, it doesn't have much of an impact on GSI, because of the company's fully domestic focus.

"As a matter of fact, problems facing China's small/medium-size producers play right into GSI's long-term strategy of roll-up.

"As the only Western-style holding company operating in China's highly fragmented steel industry, GSI has an advantage when it comes to gobbling up successful (but hobbled) competitors.

"I'm talking about GSI now, because the stock has experienced a very healthy pullback as a result of recent volatility around Chinese stocks - especially stocks tied to perceived growth in China.

"While more timid investors might run from pullbacks, they are a necessary (and healthy) part of a company's performance.

"Not only do pullbacks drive speculators out, they also afford investors an opportunity to buy shares of great companies on the cheap - as is the current case for GSI.

"If you already own GSI as one of our free trades (by way of selling one-half of our GSI position on April 16th, 2009, for a 100% gain), take this opportunity to add to your position.

"If you don't own GSI, take this opportunity to start assembling a position. No matter what the China-bashers say - in cases like this, it pays to be a contrarian when there are strong fundamentals behind a position."

Steven Halpern's TheStockAdvisors.com offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.