Under $10 Stock Could be the Next Tesla

StreetAuthority Network

There are three primary factors to consider to increase the potential for outsized gains in the market: macroeconomic environment, societal trends and company volatility. First, let's take a brief look at each of these, and then I'll introduce a company that appears bullish on all fronts.

The Macroeconomic Environment

The overall economic environment has everything to do with the success of the stock market, as well as individual stocks.

Today, markets are tied very closely to government intervention. Government support of a certain industry or trend can supercharge the success of a company. In addition, as we have witnessed in the United States, accommodative monetary policy by the government can lift the entire market. The old adage that a rising tide lifts all ships is very true when it comes to stocks.

Societal Trends

Catching a brewing societal trend is paramount to capturing maximum gains. Remember the Internet revolution, the software boom and the fitness craze? Well, all of those trends resulted in major societal changes and made the early investors in companies profiting from the trends very wealthy. 

Stock Volatility

Yes, a stock needs to be volatile for traders to capture big short-term gains. Stocks that simply drift slowly up and down, while suitable for longer-term investors, are a waste of capital for short-term traders. 

Of course, more volatility means greater risk, but traders who embrace and seek out this volatility radically increase their odds of buying into a big winner.

Taking these three factors into consideration, I recently discovered a company that I think will make a great short-term trading candidate. Additionally, it has strong potential as a wealth-building long-term hold.

This company is Chinese electric vehicle manufacturer Kandi Technologies (KNDI), which is traded in the U.S. as an ADR.

The company started out as a manufacturer of small electric recreational vehicles such as ATVs and go-carts. It has since partnered with Geely Automobile to manufacturer low-priced electric automobiles. The partnership received the seal of approval from China's government in June, and the first 100 low-priced electric cars were delivered to Hangzhou City's car sharing program in August. 

The Chinese macroeconomic environment, consisting of a massive population base and government incentives for electric vehicles, sets up the perfect conditions for Kandi's expansion. The government has agreed to pay $9,800 toward the purchase of electric vehicles. These subsidies will continue until 2015 and are paid directly to automakers who offer the incentives to consumers.

In short, the macroeconomic environment in China is perfect for a company like Kandi.

Societal trends are also very strongly in Kandi's favor. All one needs to do is look at the explosion of U.S.-based electric car maker Tesla Motors (TSLA) to witness the trend toward clean, no emission automobiles. The green trend is a global phenomenon that's in its infancy. Companies like Kandi are at the forefront of this trend.

Volatility is definitely on the side of KNDI. The stock doubled from $4.50 to $9 in the past month and a half. KNDI has since fallen back into the $7.50 range where it appears to be finding support. 

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KNDI Stock Chart

Risks to consider: Although KNDI looks like a great trading vehicle and long-term hold, there are risks dealing in China. The company's fundamentals are not completely transparent, and there is risk of the government deciding against the incentive. This risk is very real and must be understood by everyone buying into a Chinese ADR.

Recommended Trade Setup:

-- Buy KNDI on a breakout above $7.80
-- Set stop-loss at $5.80
-- Set initial price target at $13.35 for a potential 71% gain in six months

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