Financial headlines have morphed from detailing a global economic slowdown to in some cases mentioning a possible global recession. Markets have gone from nervous to downright fearful, as wide-eyed investors dumped shares across the board in Europe, the US and even in Asian markets. The global slowdown and possible worldwide recession was also cited for selling ADRs of Chinese stocks, as China's slowing growth was seen as kicking out the last legs from underneath industrial demand for raw materials. Metal stocks took a ferocious beating, with Freeport McMoran (NYSE: FCX), the copper bellwether, drawing down near its 52-week low. Coal stocks such as Alpha Natural Resources (NYSE: ANR) and the rest of the group joined copper in this rout. The market's take was that China demand would be soft.
The End Of Demand?
While this bears more discussion than we have room for here, to see China's growth pull back to perhaps less than a 9% annual GDP rate is what the markets fear. A Beijing official, according to a Reuters report, admitted that China's growth may slow to below 9 percent for 2012, for the first time in a decade. Barclay's has the estimate at 8.4 percent. Yes, it's a slowdown, but in no way can this be compared to the nearly no growth US economy, which will probably be revised to negative growth, and the alarming European situation. China is still using and will be utilizing enormous amounts of natural resource raw materials, whether it grows its GDP at 9% or 8% or anything in that neighborhood. No matter, the markets have been selling off Chinese ADRs, in many cases along with selling just about everything else since August.
China's Annual GDP Growth and Its Composition
Shanghai On Sale
If Chinese stocks were a good deal when the Shanghai Composite was at 3,000, what kind of a deal are they now? That's a bit of an oversimplification, of course, as you don't want to plunge indiscriminately into a falling market. When markets fall as rapidly as they have this spring and summer, you may not catch the falling knife as the old saying goes, instead an investor may be run through by it. So, always beware and note that. But investors need to realize-and most in the west don't-that many of the stocks that are being beaten into submission in China are paying the price for the diminished growth prospects of the rest of the world.
If you want to start looking at some Chinese stocks in preparation to buy, just do the same thing you might do for any other stock. Look for value, look at fundamentals, and try to buy at low prices. Again, these are things you hear often enough, but it can be critical to shaping future profits. Some of these companies' share prices have been taken down to ridiculous levels. Look at Aluminum Company of China, (NYSE: ACH), known as Chinalco or Chalco, with ADRs selling at $11.50, just off its low and far from its 52-week high of $26. It has trailing twelve month revenue of $19.91 billion and net income of $103.32 million. The company recovered from difficult years in 2008 and 2009. Chalco has a $6 billion market cap and has growth prospects over the long term, meaning the next several years. There are many companies like this, large companies in highly visible industries with transparent operations.
Two Year Chart of Aluminum Corp. of China
How about China's banks? Unlike US banks, particularly its troubled big two, Citigroup (NYSE: C) and Bank Of America (NYSE: BAC), which have never really recovered from the mortgage meltdown years, China's banks are thriving. Industrial and Commercial Bank of China is one (OTC: IDCBY), with a $70 billion market cap and it's selling at a PE of just over 2 right now. No, that's not a misprint. Agricultural Bank of China (OTC: ACGBY) is even larger, at $113 billion market cap and sells at a current multiple of 6.This is a bank poised to reap huge future business as China continues to ramp up its agricultural investment. Again, this is a trend not for a few months, but likely decades. It recently closed at $8.77 per ADR and carries a book value of $7.10.
There are many others. Take a different tack, with a smaller company, Country Style Cooking Restaurant (NYSE: CCSC). It features Sichuan style over the counter food. It's a home style fast food chain in China. The company is expanding, adding outlets, and had $137 million revenue in the last twelve months, with net income of $4.34 million. The PE is a bit high at 25, but sales are growing at roughly 50% a year, while the income growth rate is nearly 100%.
There are many more stocks to look at from China, these are just some ideas. You should always do additional research on these stocks.
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Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.
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