Chinese stocks have had a tough go of it so far this year. Numerous accounting scandals and outright frauds have scared foreign investors out of the market. In addition, there are concerns about slowing domestic growth as government institutes measures to slow inflation. The main Chinese index is down close to 20% over the last four months. However, the long term growth story appears intact, so now may be the time to look to pick up some Chinese blue chips with low valuations, good growth prospects and high dividend yields. Here are two stocks worth considering.
Chinese Petroleum and Chemical Corporation (SNP) – “China Petroleum & Chemical Corporation engages in the exploration, development, production, and marketing of crude oil and natural gas properties primarily in China. It operates 16 oil and gas production fields in China. As of December 31, 2010, the company’s estimated proved reserves of crude oil and natural gas consisted of 3,963 million barrels-of-oil equivalent comprising 2,888 million barrels of crude oil and 6,447 billion cubic feet of natural gas”. (Business Description from Yahoo Finance)
5 reasons to buy SNP at $97 a share:
1. SNP is selling at the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.
2. The stock yields 3.6%, and it has raised its dividend payout an average of 6.5% annually over the last five years.
3. SNP is selling at around 6.5 times this year’s expected EPS and less than 6 times next year’s earnings estimates.
4. The company has grown earnings north of 10% annually over the past half decade, sells at about .25 times trailing revenues, and has a low five year projected PEG of .8.
5. The median analyst price target on SNP is $122.
PetroChina (PTR) – “PetroChina Company Limited produces and distributes oil and gas in the Peoples Republic of China. It operates in four segments: Exploration and Production, Refining and Chemicals, Marketing, and Natural Gas and Pipeline. The Exploration and Production segment explores, develops, produces, and markets crude oil and natural gas, oilsands, and coalbed methane. As of December 31, 2010, it had 11,278 million barrels of proved reserves of crude oil; and 65,503 billion cubic feet of proved reserves of natural gas”. (Business description from Yahoo Finance)
5 reasons to recommend PTR at $126 a share:
1. PetroChina is well-positioned as China continues to add millions of new cars on its roads and needs a more refined product.
2. PTR is selling at less than 9.5 times this year’s expected earnings and less than 8.5 times 2012’s consensus EPS.
3. The stock is selling at the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.
4. PTR sells at less than 1 times trailing revenues, under 6 times cash flow and it has a dividend yield of 4.1%.
5. The mean analyst price target on PetroChina is $149 a share.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.