Wednesday, January 6th, 2010
Three Red Hot Chinese Stocks for a Strong 2010
YES, I want free trades through Zecco.com!
Longwei Petroleum Holdings, Inc. (OTC:LPIH), China Education Alliance, Inc. (AMEX:CEU), and Baidu, Inc. (NASDAQ:BIDU) are three Chinese stocks that stand to benefit handsomely from the country’s unprecedented economic expansion.
A Smart Bet on Energy with Longwei Petroleum
Investors looking for a value and growth play on energy in China have to look no further than Longwei Petroleum Holdings, Inc. (LPIH). The oil and gas marketing and transportation firm provides finished petroleum products, with a rare government wholesaler license, to a network of gas stations, coal plants and other customers through an efficient distribution network.
Currently, the stock trades at just 9.15x its trailing 12-month earnings with strong growth potential looking ahead. The company recently announced that it would construct a new plant and storage tanks in the growing Gujiao City, which is expected to double the its storage capacity and revenues beginning in FY 2010.
In a recent presentation, the company projected 2010 earnings per share to be $0.38, while they are projected to grow to $0.80 per share in 2011. Utilizing these multiples, the stock trades with a forward price-earnings ratio of just 3.4x for 2011. And with projected net year-over-year growth of more than 100%, the stock’s PEG ratio is well below the value play marker.
A Growing Middle Class Needs Affordable Education
China’s middle class is rapidly expanding and education remains at the top of the government’s list of priorities, making China Education Alliance, Inc. (CEU) a premier play in the sector. The company provides online education and onsite training in China, with a valuable database of over 300,000 exams and test papers and courseware from elementary to college level.
During the third quarter, the company booked net income of $4.17 million that was up 51.4% from a year earlier on revenues that jumped 43.3% versus a year ago. The majority of the growth was seen in the company’s online education business that generated $5.77 million in revenues, up 32.9%, and was attributed to new vocational study and certification programs.
Currently, the stock trades at around 11x its trailing 12-month earnings despite posting strong 50% growth rates during the past quarter. Meanwhile, analysts expect the firm’s earnings to rise to $0.65 per share, yielding a forward price-earnings multiple of 9.58x 2010 earnings. And with projected growth of 14% on a net basis in 2010, the stock’s PEG ratio indicates it’s undervalued.
China’s Own “Google” with a Larger Potential Audience
Combine spectacular growth in internet usage with unprecedented growth in personal incomes and one clear investment opportunity is Baidu.com, Inc. (BIDU). Similar to Google Inc. (GOOG) in the United States, Baidu.com provides the country’s leading search engine backed with revenues from the always-effective pay-per-click advertising.
While the company’s price-earnings ratio may stand at a lofty 71.6x its trailing 12-month earnings, analysts expect the company’s earnings to grow 43.2% to $8.81 per share in 2010 despite a lackluster economy. Meanwhile, strong macro growth in online spending should help bolster advertising revenues as the Chinese economy continues to expand.
Meanwhile, the company is also entering into other growing markets like online video with its partnership with Providence Equity Partners (owner of popular U.S. site Hulu.com). Assuming that broadband adoption continues to expand in China, online video could represent a strong new frontier for the popular search engine that could bolster its presence versus competitors.
Want to become a better trader? Click here to sign-up for a FREE trading e-course taught by a former floor trader!
-- Written by Rick Telfur
