The economy in China has been showing signs of a slowdown and that has led to a substantial decline in many China-related stocks. China had been seeing double-digit growth rates in recent years, but it seems that the ongoing effects of the European debt crisis, global deleveraging, and renewed weakness in the United States, are finally catching up with the Chinese economy. Still, China's GDP grew by about 7.6% last quarter, and that is the type of growth that many countries would love to have. That is why it is important to put talk of a China slowdown into perspective. A hard-landing in China might be called stellar growth in many other countries.
If investors read the negative headlines and lose perspective, it could be easy to miss what might be a prime opportunity to buy the long-term growth opportunity that China now offers. With a huge population base that is poised to grow, and a trend of rising consumer incomes, China is poised to be a secular growth story. Many Chinese stocks are trading at valuations that have not been seen in years, and that is an opportunity that investors should consider now. Here are 2 stocks that are trading well below the 52-week highs that offer a way to play the long-term growth rates in China:
E-Commerce China DangDang Inc. (DANG) shares are trading near 52-week lows due to concerns about China's economy and continued losses. This company is known by many investors as being the "Amazon.com (AMZN) of China" because it sells books, toys, gifts, DVDs and many other products online. It even has an E-book reader. Just like Amazon.com in the early years, this company is investing heavily in growth and distribution, which has resulted in losses. However, it could be setting itself up for long-term growth rates and profits in the future. A look at the balance sheet and enterprise value shows why this stock could be poised for upside. It has a very strong balance sheet with about $229 million in cash and only about $16 million in debt. The market capitalization is about $349 million but after factoring in the cash on the balance sheet, the enterprise value is just around $145 million. By comparison, Amazon.com has an enterprise value of about $112 billion. That is a huge valuation gap, and while Amazon is a much larger company, DangDang could be poised to grow much faster in the coming years.
Here are some key points for DANG:
Current share price: $4.36
The 52-week range is $4.11 to $11.25
Earnings estimates for 2012: a loss of 97 cents per share
Earnings estimates for 2013: a loss of 96 cents per share
Annual dividend: None
Baidu, Inc. (BIDU) has been a great growth stock for many years, however, the shares have sold off for a few reasons and now trade near 52-week lows. Partially responsible for the sell-off are the macro issues over a slowing economy in China. Another reason has been concern over whether Baidu is well-positioned for a transition to mobile devices, and how that can be monetized. These issues appear overblown and might already be priced into the stock as the shares now trade for just about 15 times earnings. Baidu has historically seen strong double-digit growth for the past few years and that could be poised to continue, even with a slowdown in China. If Baidu even grows at just 15 to 20% or more annually, the stock appears to be a gift at current levels since a 1:1 growth to PE ratio is considered to be very reasonable. Analysts expect earnings to jump nearly 35% from about $4.67 to around $6.22, which is a sign that this stock is undervalued based on growth prospects.
Here are some key points for BIDU:
Current share price: $107.70
The 52-week range is $99.71 to $154.15
Earnings estimates for 2012: $4.67 per share
Earnings estimates for 2013: $6.22 per share
Annual dividend: none
Data sourced from Yahoo Finance. No guarantees or representations are made.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.