Why Invest in China Natural Gas?

Jun. 5.09 | About: China Natural (CHNG)

China Natural Gas (CANL.OB) has been approved to be listed on NASDAQ starting June 5, 2009. The stock symbol is expected to be changed back to OTC:CHNG. The stock has a good run up (more than 30% in 2 days) after the news is announced. I expected there will be more institution buying in the future. Thus, I suggest this stock for long-term investing.

China Natural Gas had a 2:1 reversed stock-split and changed its symbol from CHNG to CANL. The purpose of the reverse stock-split is to artificially bump up the stock price for NASDAQ listing. If you have bought the stock as I suggested in my last article, you would have made a good profit. But I would not sell it at this point. As China's economy continues to grow at a respectable rate, I would hold the stock for long-term (over 24 months). Also, I believe institutions, like mutual funds will buy the stock since this is one of the few China natural gas company listed in US. So, if mutual funds want to hold a China natural gas company, they will buy this stock.

So, why do mutual funds not buying before? Majority of the mutual funds cannot buy companies that are listed in pink sheet or bulletin board, where the company is listed before. I deeply believe that CANL applying to be listed on NASDAQ is to attract institutional exposure and buying.

Of course I am suggesting the stock not because it is going to be listed on NASDAQ, but because the company has great earning potential. For the most recent quarter, the company increased both the revenue and earning for more than 50%. In fact, the company has been growing at the average 50% rate for the last few years now. To sustain its growth rate, the company has continued to expand into different geographic regions with monopoly power. The most significant news is that the Chinese government is raising the natural gas prices so the company can increase its earnings without even increasing its customer base.

So, China Natural Gas is a good long-term investment based on its fundamentals.

If you are a long-term investor, it is still not too late to buy at this level. I expect the stock to be double in the next few years giving the revenue growth and earning power along with the Chinese government policy emphasing alternative energy.

Also, once again, today the company should be listed on NASDAQ, and the stock symbol should be changed back to CHNG.. You may see some buying starting tomorrow and throughout next week. With institutional buying, the stock will have more liquidity, which in turns will attract more investors. With the China economy is on the road to recovery, the China stock market and China stocks may be the best way for you to invest for now.

Disclosure: Long CHNG.