OK guys, we've been talking about Lihua International (LIWA) with an asterisk behind it for several days now. Well, that pending footnote is no longer just a pending footnote - LIWA is confirmed to be the great company it looks like on paper. An independent report prepared by China 360 Solutions has verified the numbers found in its SEC filings totally jive with what it's reporting to the taxation body for the state of China. In other words, Lihua is exactly everything it says it is... which is one heck of a company currently priced at bargain levels. So, this small cap stock - which we liked several days ago just because it was handily outperforming the market - is a stock we love as of today now that we've read the report. And, against the backdrop of Tuesday's earnings figures, it's tough to find anything wrong with it. In fact, let's just start with last quarter's numbers and get to the China 360 report in a moment. Earnings Rock! No fanfare needed... the market was looking for a profit of $0.43 per share, and it got $0.48 on a GAAP basis, or $0.44 on an operating basis. That income level tops off what's become a long string of earnings improvements, and is actually tied for the company's record per-share profit. I'm not surprised about the beat or the move back to all-time income levels though. We've been seeing it happen for a while now, no matter how good or bad the economy - or copper prices - seemed to be doing. Oh, did I mention that the bottom line was stronger by 37% on a year-over-year basis, while the top line was stronger by 122%? Go ahead and try ... you're not gonna' find much fault in Q2's numbers. The forecasted results of $0.64 for Q4 are also into record-breaking territory. And before any of the conspiracy theorists (whether that's you or just other traders you run across) try to play the "All Chinese stocks are a fraud" card again, you may want to hold off. Remember, Lihua's cash balances have already been audited and confirmed by an independent reviewer. Today the China 360 report confirmed everything else... by cross-checking info found in its accounting filings with the counter-parties (customers, regulators, suppliers, etc), as well as stepping foot onto Lihua's plants and offices and doing things like headcounts and inventory counts. It's probably one of the most comprehensive - even a little invasive - audit-like reviews I've ever seen. EVERYTHING checked out ok. Anyway, the trailing P/E for LIWA is now a comical 4.75, and the forward-looking one is an even more ridiculous 3.7. Both numbers were already plausible and believable; now they're outright concrete... and the stock's really starting to act like it too. Selloff? What Selloff? I actually mentioned this in Tuesday's newsletter so I won't get neck-deep into it again..... just knee-deep. LIWA has shrugged off the worst of the recent marketwide selloff, which is a real testament to the bullish undertow that's brewing here. Don't get me wrong... Lihua has paid some dues of late. It got whacked in mid July after a nice rebound effort, and it got absolutely destroyed in the latter half of 2010, sinking from $12 to less than $6. The last eight days, however, have been bullish ones for LIWA while they were the worst of the worst for U.S. stocks. That kind of relative strength speaks volumes about the seriousness of the buying interest developing with Lihua International. Anyway, there are two technical clues with this stock that really tell me the worst is behind us and the days ahead should be bullish ones. The first tip-off is how the recent low around $5.20 just happened to line up with the low from mid-June. The bulls have drawn a line in the sand there, and managed to ignite two rally efforts using it as a launchpad. The second clue is the volume for the bar from August 1st, which was the day we hit that low around $5.20 again and started to recover. Volume spikes like that tend to indicate a kind of capitulatory blowout, leaving only the buyers behind. And sure enough, that's how things are unfolding now. The volume since then has been more bullish than bearish to boo, with today's putting the cherry on top. Bottom line The misery of the U.S. market and economy is a local phenomenon - China is actually doing quite well. Unemployment is starting to sink there, businesses are growing thanks to effective help from the government, it's generating huge trade surpluses, and despite several rate hikes, it's still struggling to contain inflation (a great problem to have). And Lihua is right in the middle of it all. There's not a lot not to like. Best of all, the China 360 report came back positive as expected. Were it me, I'd be willing to get in now - or stay in - while the price is fairly contained. You don't often see a legitimate stock trading at a sub-5.0 P/E ratio, and I can't imagine this one staying at that level for long as word of the independent verification report spreads. You can go to our Lihua International research page and look in the left hand column (for 'LIWA Research Media') if you want to review it for yourself. Just know it's a fairly big file and could take a moment to load. Definitely worth the wait though.