6 Stocks That Could Drop Due To China Exposure

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Includes: BIDU, CHL, FCX, SCCO, SINA, WLT
by: Hawkinvest

The stock market in China has been one of the worst in the world, in terms of performance this year. Many smart money managers have been predicting economic problems for China in the future. A recent article by Marketwatch details the concerns of one China bear and it states "China is heading into an economic storm, and the much-feared hard-landing of the world’s second-largest economy has already started, warned celebrated hedge-fund manager and China-bear Jim Chanos of Kynikos Associates on Monday. “The numbers are falling faster than we thought,” said Chanos during an exclusive interview with MarketWatch on the sidelines of the 7th Annual New York Value Investing Congress." The article points to a number of indicators which support Chanos theory and it goes on to say "Chanos has consistently said China’s bust will be a thousand times worse than Dubai. “It’s very hard to let air out of a property bubble without collateral damage,” he said. Chanos also expressed concerns about the country’s banking sector. The Chinese economy is adding $2 trillion of new debt every year, and half of that is problematic from day one, he said." Read the full article here.

It does appear that some of the recent growth in China has been engineered by the Chinese government and as the world has recently learned, growth that is not organic and real is often not sustainable. There are signs that the Chinese economy is becoming more vulnerable and that could make these stocks more vulnerable to declines as well:

Baidu, Inc. (NASDAQ:BIDU) is based in China and is a leading search engine company. This stock has had an incredible run over the past few years. However, due to this run, the valuation is at nosebleed levels and was recently trading for about 50 times earnings. This stock was trading for about $147 in September, then it dropped to around $100 per share before rebounding sharply. This rebound might be a good time to take some profits on this richly-valued stock.

Here are some key points for BIDU:

  • Current share price: $132.37
  • The 52 week range is $94.33 to $165.96
  • Earnings estimates for 2011: $2.92 per share
  • Earnings estimates for 2012: $4.39 per share
  • Annual dividend: none

Southern Cooper Corporation (NYSE:SCCO) has copper mining, and refining operations in Peru, Mexico, and Chile. This stock has plunged to new lows recently along with the price of copper. While this stock appears to offer value, it has already rebounded sharply off the recent lows and could retest those lows soon, especially if copper demand from China declines.

Here are some key points for SCCO:

  • Current share price: $28.29
  • The 52 week range is $22.58 to $50.35
  • Earnings estimates for 2011: $2.87 per share
  • Earnings estimates for 2012: $3.08 per share
  • Annual dividend: $2.48 per share which yields 8.8%

Freeport-McMoRan Copper and Gold (NYSE:FCX) is a leading exploration and mining company seeking to produce resources like gold, silver, copper, cobalt and other minerals. Copper prices can be very volatile and have been dropping because it is widely used in construction. China is a large consumer of copper and recent concerns about the Chinese economy has also impacted this stock. However, it has rebounded substantially off the recent lows and now might be a chance to sell since it could test those lows again soon.

Here are some key points for FCX:

  • Current share price: $35.38
  • The 52 week range is $28.85 to $61.35
  • Earnings estimates for 2011: $5.36 per share
  • Earnings estimates for 2012: $5.54 per share
  • Annual dividend: $1 per share which yields 2.7%

Walter Energy Inc., (NYSE:WLT) is a leading coal producer. This stock was very weak in the last financial crisis and the shares traded around $13 at the lows of 2008-2009. If we see another major global financial crisis, this stock looks vulnerable, especially if China demand for coal drops. This stock was trading around $54 just days ago, and has jumped about 40%.

Here are some key points for WLT:

  • Current share price: $74.88
  • The 52 week range is $53.41 to $143.76
  • Earnings estimates for 2011: $8.04 per share
  • Earnings estimates for 2012: $9.87 per share
  • Annual dividend: 50 cents per share which yields .6%

China Mobile Limited (NYSE:CHL) is a leading provider of telecommunication services in China. A weaker economy in China could slow down sales for this company and that might lower the growth rate and price to earnings ratio. Long term this looks like a solid investment, but I would wait for lower prices.

Here are some key points for CHL:

  • Current share price: $48.83
  • The 52 week range is $43.51 to $53.81
  • Earnings estimates for 2011: $2.86 per share
  • Earnings estimates for 2012: $4.10 per share
  • Annual dividend: $1.83 per share which yields 3.7%

Sina Corp. (NASDAQ:SINA) operates a number of popular websites in China. This stock appears to be in a solid downtrend as it is way below the 52 week high and also below key support levels such as the 50 and 200-day moving averages. This stock is trading at a very high price to earnings ratio and even after a sharp decline, the stock still trades for about 85 times earnings. A slower level of growth in China could reduce the earnings multiple that investors are willing to pay for a stock like this.

Here are some key points for SINA:

  • Current share price: $86.01
  • The 52 week range is $51.27 to $147.12
  • Earnings estimates for 2011: 95 cents per share
  • Earnings estimates for 2012: $1.60 per share
  • Annual dividend: none

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.