Don’t Miss Your Chance At 184% Profits!
Last week I shared my thoughts on China. I gave you my outlook for the Chinese economy and Chinese stocks. If you missed my article, Bargains Galore In China, you can read it here.
In a nutshell, I see China maintaining a strong growth rate this year and next. And I expect Chinese stocks to stage a big rally over the next year.
Some investors are worried the Chinese economy is slowing too much. They point to today’s second quarter GDP report as evidence China is sliding into recession.
I say they’re overreacting.
Yes, GDP growth dropped from the first quarter’s blistering 11.9% pace. But it still grew at an enviable 10.3% rate. Compare that to the U.S. which is growing at just 3% to 3.5%.
China looks pretty burly to me.
And the International Monetary Fund agrees. They see strong growth ahead for China. They’re projecting China’s GDP will grow 10.5% this year and 9.6% next year.
Not too shabby.
Even if GDP growth drops to 9% as some fear, that’s still robust enough to drive strong corporate earnings growth. And strong earnings should propel Chinese stock prices significantly higher.
Last week’s article prompted a huge response from DWR readers. Many agreed with my bullish outlook for China. And several asked for the names of a few Chinese stocks to buy.
I’m more than happy to oblige.
I ran a screen looking for fast growing Chinese companies with misvalued stocks. Specifically, I looked for companies expected to grow earnings this year and next. Then I narrowed the list down to stocks trading at a big discount to projected earnings growth rates.
One company on the list caught my eye… Harbin Electric (HRBN).
Harbin is a leading manufacturer of electric motors for a wide variety of commercial uses. The company’s major product lines are industrial rotary motors, linear motors, and specialty micro-motors. These products are sold to a large number of domestic and international customers.
You’ll find the company’s motors in almost every sector of the economy.
Harbin has customers in industries like energy, factory automation, food processing, packaging, and transportation. They also sell motors to the automobile, medical devices, manufacturing, chemical, metallurgical, and mining industries.
Harbin’s sales and earnings are going gangbusters.
Take a look at first quarter numbers. Revenue soared 243% to over $105 million. Part of the huge increase was due to an acquisition. But even without the acquisition, revenue nearly doubled over last year’s quarter.
Net income skyrocketed 137% to just over $20 million. Earnings jumped 69% to $0.66 per share. And earnings beat estimates by a healthy 35% margin.
That’s the fifth straight quarterly upside earnings surprise!
As a result of the strong quarter, analysts have raised estimates for this year and next. They’re now expecting earnings of $2.81 for 2010 and $3.08 for 2011. Remember, rising earnings estimates tend to drive a stock’s price higher.
The next earnings release could be a big catalyst for the shares.
Second quarter earnings are scheduled for August 9th. Analysts are looking for $0.71 per share. That’s an increase of 115% over the year ago quarter. Another upside surprise could really get the shares moving higher.
Some are concerned China’s efforts to cool off their housing market will hurt Harbin’s growth. But management disagrees. The company’s CEO recently said, “We do not expect a slowdown in the real estate sector… to negatively impact our business.”
Why’s he so confident?
You see, Harbin’s business “is a key foundation of China’s overall economic growth and supports a wide range of economic sectors…” In other words, the company’s widely diversified business protects against slowdowns in any one economic sector.
Despite the company’s surging growth, the shares are extremely misvalued.
At a recent price of $17.63, HRBN is trading at just 6.3x the 2010 estimate. That’s a very low P/E for a company projected to grow earnings 20% a year over the next five years. In fact, it produces a PEG ratio of just 0.32.
This means HRBN is trading at a 68% discount to the company’s projected growth rate.
Clearly, these shares have huge upside potential. Using the industry average P/E of 17.9x, HRBN could easily trade up to $50 a share over the next six to nine months.
That’s a whopping 184% higher from here.
Take a closer look at HRBN for your own portfolio. I think they’re a great way to play the coming rally in Chinese stocks.
Category: Foreign Markets
