Gold Medal China Stocks
Four companies looking solid through Olympics and beyond.
Over the weekend the big news was that a Chinese investment manager won the bidding to have lunch with Warren Buffet. Consider that the winner of the lunch last year got the chance with a bid of $650,000, it's rather mind-boggling that a year later the winning bid is $2.1 million! Even more telling is the winning bidder is a Chinese investment manager. How appropriate since China is the world's fastest growing economy.
Of course from an investing point of view China has been anything but hot. On the contrary the Chinese stock market has been the worst performer of 2008 after more than doubling last year. In the meantime the Chinese economy keeps growing, increasing non-stop like a juggernaut, but there are some areas of concern. Inflation in 2007 was just 4.7% in the most recent reading it was 8.7% -- the highest in 12 years.
All the stocks I selected have PEG ratios well below 1.00 and potential for growth well beyond the Summer Olympic Games. The PEG ratio is price earnings against growth and a great metrics to consider when looking at high growth stocks. I still love Baidu.com (BIDU) and SINA.com (SINA) but want to mix up the industries a little.
China Security & Surveillance (CSR)
The company manufactures, installs and distributes security systems used in surveillance in China. With the Olympics right around the corner sales should surge for the company. In fact over the weekend China began security checks in its rail stations and this heightened security will probably become permanent policy. For all its potential this company has been a disaster as a publicly traded stock. Like so many Chinese companies that have gone public over the past few years the equity price has been disastrous and execution spotty at best. Technically the stock is at a double bottom and sees some resistance at $16, then $18. My firm thinks the stock has room to $22.00.
My firm has been in and out of this stock over the past couple of years and the reality is if an investor has the wherewithal to hang tough through the gyrations this is a buy and hold for the next two years, maybe longer. The company that provides online products and services has beaten the earnings estimates in each of the last four quarters, most recently by a margin of 49%. June quarter estimates have been surging and now the Street is looking for $0.66 just three months ago the consensus was $0.44. Technically the stock sees some resistance at $72.0 then $77.0 beyond there we see the stock rallying to $90.00. By the way the PEG ratio is only 0.91.
Perfect World (PWRD)
I think the next revolution in China will happen not from an underground movement but from the Internet. Of course right now it's all about fun through multiplayer games that feature martial arts, fantasy and war competitions. The stock sees some resistance at $28 then has a clear shot to $34. My long term target is $40. The stock, by the way, is trading at a PEG ratio of just 0.42. The company has a great history of besting Street expectations with respect to earnings and I see that trend continuing.
The wealthier China becomes the more demand for protein, particularly pork and chicken. The company hasn't been public very long and it has showed. The company missed the consensus estimate by $0.03 in the March quarter. Still, earnings estimates continue to ratchet high with FY '08 estimates now at $0.99 and FY '09 $1.35, both higher in the last few weeks. The PEG ratio is 0.56. Technically I would wait to pull the trigger once the stock got above $14.50 on a million shares. Ultimately the stock has the potential to rally back to $21.00.
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