Even as the global economy has faced significant challenges and concerns in 2012, many regions have seen a stock market rally. The United States and even European markets are up for the year, and that means it is tougher to find bargains worth buying. However, the stock market has seen a substantial decline in China and that has created what might be a terrific buying opportunity for longer-term investors to consider.
Investors have dumped Chinese stocks due to concerns that the country might be facing a "hard landing" that could cause a major shock to the entire economy. For the past several years, the economy in China had been seeing double digit growth, which is now possibly just coming in at about 7%, depending on what numbers and who you believe. This brings up the concern that many investors have about buying Chinese stocks because some have had significant accounting and other issues. That's why it might be best to buy stocks that are correlated to China (but not based there) and poised to benefit from the secular growth trend that the country offers for many years to come. China has a major population base that is poised to grow. Chinese consumers are seeing their incomes rise and that trend should continue over time and create more demand for goods and services. Investors who want to take advantage of the buying opportunities in China related stocks without the risk of owning a Chinese company should consider these names:
Walter Energy Inc. (WLT) is a leading producer of metallurgical coal, industrial coal, steam coal, anthracite, and other related products. Since China is a major consumer of these basic commodities, the reduction in demand and lower prices have taken a toll on companies like Walter Energy. Many coal stocks have recently hit new 52-week lows and some companies are reporting losses. However, Walter Energy has remained profitable and analysts expect it to report positive earnings in the coming years. This company reported second quarter net income of $32 million or 51 cents per diluted share. Policymakers in China recently lowered interest rates and approved about $156 billion worth of new infrastructure projects. This should create significant demand for the commodities produced by Walter Energy, in the coming quarters. In 2011, this stock traded around $140 per share, and that should give investors an idea of the upside potential when coal demand strengthens.
Here are some key points for WLT:
- Current share price: $36.35
- The 52 week range is $29.75 to $83
- Earnings estimates for 2012: $1.65 per share
- Earnings estimates for 2013: $2.72 per share
- Annual dividend: 50 cents per share which yields 1.4%
Freeport-McMoRan Copper & Gold (FCX) shares have been impacted by China because that country is one of the world's largest consumers of copper. Since copper is used in a wide variety of industrial
applications, construction, electronics and for other purposes, it is highly sensitive to the economic cycles in China. Freeport is a leading producer of copper, as well as gold, silver, cobalt, and other natural resources. This diversification reduces risks for investors since strong gold prices can offset any weakness in copper, however, if both gold and copper return to historical highs, the company could be poised for a significant profit rebound. It's possible that easy money policies from central banks around the world will continue to create demand for hard assets like gold. Government stimulus could also boost economic activity globally which should also benefit copper demand. For those reasons, Freeport shares might be poised to make a strong run and eventually hit new 52-week highs. It now trades for just about 8 times earnings estimates for 2013, which is well below the average stock in the S&P 500 Index, which currently trades for around 14 times earnings.
Here are some key points for FCX:
- Current share price: $41.30
- The 52 week range is $31.08 to $48.96
- Earnings estimates for 2012: $3.38 per share
- Earnings estimates for 2013: $4.83 per share
- Annual dividend: $1.25 per share which yields 3.1%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.