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With the market getting more confident about Chinese growth after bullish calls by Morgan Stanley and Goldman Sachs this week, as well as a positive December exports report Thursday, it might be time to look at some cheap large cap plays that should benefit from accelerating growth in China. Here are two plays with market capitalizations over $50B that get significant sales from China, and with five-year projected PEG ratios of under 1 to consider.

Caterpillar (NYSE:CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide, and is an obvious play on increasing manufacturing activity.

Why China Matters - The company gets around 70% of its revenues from overseas, and its Bucyrus acquisition increased its exposure to mining equipment where China is a major customer. It also could gain on the escalating conflict between China and Japan. This has caused significant sales declines in the country for Toyota and the other Japanese auto manufacturers. It is within the realm of possibility that this will eventually affect Caterpillar's biggest competitor and arch rival, Komatsu, at some point as well if this consumer boycott in China extends to other Japanese manufacturers.

4 reasons CAT is cheap at under $95 a share:

  1. The stock has a five year projected PEG of just .74.
  2. CAT is selling in the bottom third of its five year valuation range based on P/E, P/CF and P/B.
  3. The stock is selling at less than 10x forward earnings, a big discount to its five year average (17.9). The company also has an A rated balance sheet, and pays a 2.2% dividend yield.
  4. The company has beat earnings estimates for five straight quarters. The average beat over consensus during that timeframe has averaged 16%. Credit Suisse has an "Outperform" rating on the shares, and S&P has a "Buy" rating and a $117 a share price target on CAT.

Apple (NASDAQ:AAPL) is still the world's most valuable company by market capitalization despite its recent four month slide from a peak of $705 in mid-December.

Why China Matters - Apple should get 15% to 20% of its revenue from China this year. Its CEO, Tim Cook, is currently in China courting China Mobile. This obviously would be a huge deal for both companies. Apple would get access to China Mobile's 700mm subscribers. It already sells to the other top two carriers in China, and Apple is racking up more than 2mm iPad sales per quarter in the Middle Kingdom. If Apple signs China Mobile, I would expect a significant jump in the stock similar to when it announced Verizon (NYSE:VZ) would carry the iPhone. This deal would also benefit China Mobile. It could offer a very popular smartphone that its top competitors already carry, and it would benefit from the increased data service revenues driven by Apple customers. It will be interesting to see if/what concessions Apple gives China Mobile (i.e., a cut of app revenue?). However, given Cook is in China, it is very possible something is in the works.

4 reasons Apple is a bargain from under $520 a share:

  1. The company has the lowest five year PEG (.51) for any company with more than a $50B market capitalization.
  2. The stock sells at just over 9x forward earnings, about half its five year average (18.2).
  3. Approximately 25% of the company's market capitalization is in net cash and short-term marketable securities. It also pays a 2% dividend yield.
  4. The stock sells at the bottom of its five year valuation range based on P/E, P/CF and P/B.
Source: Improving Picture In China Could Benefit These 2 Cheap Large Cap Plays