China continues to be a promising sector to invest in for the future. As most investors know, a few Chinese companies have had fraud allegations and/or poor corporate governance and accounting problems. These issues have also made some Chinese stocks easy targets for short sellers. Those concerns have caused doubt and lowered valuations on most Chinese small cap stocks. However, this might be a case of throwing the baby out with the bath water, since most Chinese companies are based on real business models that have real earnings and growth potential. I have been researching a handful of stocks that are based in China to see where the best values might be now. These stocks look cheap from just about every metric. All of them are well below their 52 week highs. They all have reasonable PE ratios and offer future growth potential. Here are the companies:
General Steel Holdings, Inc., (NYSE:GSI) shares are trading at $2.13. GSI is a manufacturer of steel products, based in China. These shares have traded in a range between $2.01 to $3.73 in the last 52 weeks. The 50 day moving average is $2.28 and the 200 day moving average is $2.59.
Here is What makes GSI a potential bargain: GSI recently reported a 57% rise in revenues and a profit for the quarter of 5 cents per share. The stock trades just slightly over the book value which is currently stated at $1.82. Insiders seem to believe these shares are a good value and they have been buying shares heavily over the past several months.
Suntech Power Holdings Co., Ltd. (NYSE:STP) currently trades for about $8.53. STP is a leading solar products manufacturer. These shares have fallen, from a 52 week high of $11.55. The 50 day moving average is $8.97 and the 200 day moving average is $8.85. STP has earnings estimates of about $1.20 per share for 2011, and $1.11 for 2012. This puts the PE ratio at about 8, well below the average market PE ratio.
What makes STP a potential bargain: The stock trades for less than book value, which is currently stated at $10.53. China is already a leader in clean energy and recently announced goals to further expand their dominance in this industry.
Shanda Games Limited (NASDAQ:GAME) is trading at $7.15. GAME is one of the leading online gaming companies in China. The 52 week high is $7.70 so these shares are fairly close to hitting new highs. The 50 day moving average is $6.86 and the 200 day moving average is $6.33. GAME has earnings estimates of about 73 cents per share for 2011, and 80 cents for 2012. This puts the PE ratio at about 10.
What makes GAME a potential bargain: Compared with other Chinese Internet related companies, these shares are cheap. Many Chinese companies in this sector have PE ratios that are significantly higher.
Yingli Green Energy Holding Co., Ltd. (NYSE:YGE) closed at $10.87 today. These shares have a 52 week high of $14.29. The 50 day moving average is $11.82 and the 200 day moving average is $11.53 so the shares are trading below support levels. Estimates for YGE are about $1.61 per share in 2011. This puts the PE ratio at about 7, which is higher than the other solar names but still a huge discount to the stock market average.
What makes YGE a potential bargain: The stock trades for just above book value, which is currently stated at $8.27. As with STP, YGE benefits from the fact that China is already a leader in clean energy and recently announced goals to further expand dominance in this industry (see above). YGE just lowered guidance and the shares fell Wednesday.
China TransInfo Technology Corp., (NASDAQ:CTFO) is trading around $4.88. China TransInfo produces software solutions primarily for use in the transportation sector and is based in China. These shares have traded in a 52 week range between $4.13 to $7.95. The 50 day moving average is $4.74 and the 200 day moving average is $5.43. Earnings estimates for CTFO are at 80 cents per share for 2011, and 94 cents per share for 2012.
What makes China TransInfo a potential bargain: This stock is trading close to the 52 week lows, and insiders have been recently buying shares. It appears that the CEO (who has been making repeated insider buys) is doing some bargain hunting. The book value is reported to be $3.77. Based on earnings and book value, plus insider buying, this stock looks inexpensive.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GSI, YGE over the next 72 hours.
Disclaimer: The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. This information is solely educational in nature and not intended to serve as the basis for any investment decision.
Source: 5 Dirt Cheap China Stocks