Investment Ideas: 4 Excellent Chinese Growth Stocks

It’s no secret that Chinese stocks have been pumping out massive gains over the last few years, barring last fall’s global economic meltdown. And now that the country is on the cusp of eclipsing Japan as the world’s #2 economy, the song is much the same.

While many other countries continue to struggle under the weight of a global recession, China is on pace to post GDP growth of more than 8% this year. The country’s torrid growth trajectory is being fueled by a few key factors.

Key Factors Driving China’s Growth

First and foremost, China has firmly established itself as a manufacturing powerhouse, accounting for 9% of the world’s exports. That strong manufacturing base has given rise to a consumer class that is demanding both regular and premium products and services alike.

The country has also made huge investments in its infrastructure, building houses, roads and public works that have raised standards of living and intra-country economic activity.

And finally, China has aggressively attacked the global economic slowdown with a hefty $586 billion stimulus package, a significantly larger portion of its GDP than our own domestic stimulus package. Say what you will about the political and social implications of such decisions, from a financial perspective, the money shower has and will continue to have a pronounced effect on consumption and production.

Show Me The Money

So now that we have a base understanding of the engine that is driving China’s growth, let’s shift gears and focus on what is really important to investors; how to score some gains.

Chinese stocks are notorious for being volatile and extremely expensive, so wouldn’t it be great to capture all that amazing growth potential without the negative baggage? Here are 4 Chinese stocks that offer just that, a very compelling combination of growth and value that can provide your portfolio with a healthy scoop of the Chinese growth story with some value to boot.

4 Excellent Chinese Stocks

Shanda Interactive Entertainment (SNDA) specializes in developing online gaming systems out of China. Not only were the company’s recent Q2 sales up an incredible 48% from last year, but Shanda has a very strong balance sheet, with $630 million in cash and short-term investments against just $175 million in long-term debt. Shares of SNDA are currently trading at 15X projected current-year earnings with a solid 13% earnings growth projection in the next-year period.

Rino International Corp. (RINO) looks well positioned to capitalize on China’s environmental initiatives as a provider of environmental protection equipment for the iron and steel industry. Shares have posted big gains over the last few months, but with strong earnings projections in tow, the valuation picture is still in check. The company’s recent Q2 results included an amazing increase in sales of 87% from last year to $36 million. Take a look at the chart below.

Wonder Auto Technology, Inc. (WATG) has been on fire over the last 6 months, jumping from a low just over $2 in early March to a recent high just shy of $13. The maker of electric auto parts has beat in each of the last 4 quarters by an average of 12% and boasts a very bullish 20% next-year growth projection. The value picture is in check too, trading at just 13X projected current-year earnings. Take a look at the big rally below.

Chinese Medical Technologies (CMED) develops and manufactures medical devices in China. In an environment where most companies’ revenue is contracting, CMED’s Q2 revenue was up 35% from last year. The valuation picture looks almost too good to be true, with shares trading at just 5.5X projected current-year earnings. On the chart, shares recently traded lower on an earnings miss but have since rebounded to pressure a key level of short-term resistance. Take a look.

Conclusion

Chinese stocks are going to be volatile in the short-run, but by focusing on strong valuations and segments of the market that will benefit from long-term demand, it is a very good place too look for outsized gains to give your portfolio a serious kick in the pants.

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Comment by AJ

2009-09-17 19:37:39

I am amazed how you could recommend stocks with so shallow analysis! I mean CMED is trading at a discount for a reason and you didn’t even bother to mention that reason here in your post - NICE going!!!

Readers, CMED has faced some accounting irregularities and no one knows what the truth is, at least you should know this information before you read articles like the one above and jump into a stock since our author seems to make a compelling one-sided case, i.e., revenue growing 35% but stock price is really cheap.

Cheers, AJ

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