By Andrew Hawkins
As the economic outlook in the U.S. continues to look bleak, investors are turning to other countries to find returns. Many investors find these returns in China. Here's a look at six Chinese stocks that are worth having in your portfolio.
PetroChina Company (PTR) is an oil and gas producer that operates within the People's Republic of China. PetroChina is involved in exploration, refining, and distribution of oil. It also has almost 20,000 service stations throughout China. In May, PetroChina announced that it plans to set up three operations centers in New York, London, and Singapore. This is a move that the company says will help it gain greater influence in the global market. It is the largest oil company in China and has a market cap of $256.3 billion.
PTR has a few things going for it that makes it a solid bet. Fundamentally, PTR has a price to earnings ratio of 11.67 compared to an industry average of 15.76. It also has a PEG ratio of 0.97 compared to an industry average of 1.43. PetroChina currently has a 12.00 earnings per share ratio. Another plus for PetroChina is that it is currently yielding 3%. It has a semi-annual dividend payment and the last recorded dividend was $2.1112 in December, 2010. In addition, PetroChina has an operating margin of 12.3% compared to the industry average of 11.6% and a net margin of 9.1% compared to the industry average of 6.2%.
CNOOC Ltd. (CEO) is an oil company that operates in the People's Republic of China. CEO explores for oil, gas, and other petroleum products in offshore China. More specifically, it has units in Bohai Bay, Indonesia, Australia, Nigeria and all over the China Sea. It is the third-largest oil company from China and has a market cap of $107.83 billion.
CNOOC Limited is currently trading around $240.44 and has a price to earnings ratio of 12.91. It also has a forward price to earnings of 10.3. It boasts a 0.41 PEG ratio. It has solid margins at 38.59% and has 12.88 billion in operating cash flow. CEO also pays a nice dividend. In the first quarter of 2011, CEO paid out a quarterly dividend of $2.4336. CNOOC has a projected yield of 2.4%. I think that CEO will continue to expand revenue and the companies EPS Growth is 18.9.
NetEase.com Inc. (NTES) was founded 1997 as an Internet portal. It has since added many online features but is widely known for its games. NTES has a development team that has created many hits. The company hosts its own games and licensed games from other game developers. Almost all of the company’s revenue comes from the hourly fee NetEase.com charges its users. The company does have other revenue streams such as advertisements. Beyond gaming, the site has a large range of uses and services including search, instant messaging, forums, shopping, news, and even matchmaking. It is based in Beijing, the People's Republic of China and has a market cap of $5.6 billion.
NTES has many famous games and brands on the market and in 2009 listed its intangible assets as $32.9 million. The company also has solid fundamentals. It is trading around $43.36 and has a price to earnings ratio of 14.0 compared to an industry average of 29.8. It has an operating margin of 45.9% and a net margin of 43.1%. The future seems pretty good for NetEase.com. It has a forward price to earnings of 11.31 and a PEG ratio of 0.81. I think that NetEase.com is in a great position but one must be weary of the online gaming industry, as a whole, because of the volatility and need for constant innovation.
Baidu Inc. (BIDU) is China’s largest Internet search provider. It is currently ranked the sixth most-viewed website in the world, behind competitors Google (GOOG) and Yahoo (YHOO). Baidu offers a range of services such as instant messaging, news compilation, an e-commerce platform, and others. The majority of Baidu’s revenue comes from online advertising and paid search advertising. The company underwent a 10:1 stock split in May 2010. It is trading around $124.83 and has a market cap of $43.5 billion.
Baidu had a stellar first quarter this year. BIDU announced that it had more than doubled first-quarter profits from 480.5 million yuan to 1.07 billion yuan. In the same quarter, revenue rose 88%. Baidu can continue this success with the help of a continual shift towards online advertising. BIDU has a PEG ratio of 0.96 and a revenue growth of 20.6. It also has an operating margin of 51% and an EPS growth of 77.3. Google pulled out of China in March 2010 and has left a lot of market share for Baidu to grab. Baidu is a growth stock and with its customer base expanding from the Google void, I would expect to see more growth.
Focus Media Holding Ltd. (FMCN) is a multi-platform advertising company. It has advertisements that are out of the home and in commercial areas, in stores, in video games, and poster frames. Its multimedia network connects all of these and is the largest network in China. FMCN had some trouble during the 2008 credit crisis, but has emerged alive and restructured. This real-world advertising leader has a market cap of $4.1 billion.
Focus Media did very well in the first quarter of 2011. It saw its net revenue jump 51% and adjusted earnings came in at $0.30, beating analysts’ predictions. It holds a net margin of 36.35% TTM. It has a price to earnings ratio of 19.68, which is slightly above the industry average of 18.18. On the other hand, it does have a PEG ratio of 1.04 compared to the industry average of 1.13. I think Focus Media is a solid buy. I think that FMCN will benefit from advertisers looking for ways to reach Chinese consumers out of the home. Focus Media is also undergoing some strategic acquisitions to stay at the top of the industry. For example, it recently purchased a 15% stake in VisionChina Media Inc. (VISN), which has advertisement networks in mass transportation systems.
51job Inc. (JOBS) is a human resources service that operates online through 51jobs.com. It connects employers with job seekers. JOBS also offers a weekly publication where it sells print advertisements. In addition, the company provides other human resources services such as business process outsourcing and head hunting services. It also leads a series of seminars on various areas of business. 51jobs does business in 56 cities throughout the People's Republic of China and has a market cap of $1.3 billion.
51jobs had a strong first quarter in 2011. Earnings per share rose to $0.47, exceeding analysts’ expectations of $0.40. Revenue jumped by 27.6% and net income was up 78%. JOBS has operating margins of 29.08% and has a PEG ratio of 1.26. On June 7, JOBS took a near 15% drop in stock price following negative news and a disappointing jobs report. This is because if employers do not have job openings there is no reason to buy an ad through 51jobs. Despite this, I will still put a buy recommendation on JOBS. The Chinese job market is much stronger than in the U.S. The weak U.S. job market may ultimately negatively affect the Chinese market, but it will not hinder the Chinese job market significantly.