China has led the economic recovery on many fronts, from strong industrial production to resilient consumer spending to big-ticket infrastructure projects that spurred widespread growth. But perhaps one of the most widely publicized developments for this nation is its current status as the #1 auto market in the world.
In 2009, a total of 10.3 million passenger cars were sold in China — up over 50% from 2008 — with a record 13.6 million vehicles sold in total nationwide. That is significantly above the 10.4 million vehicles moved in the U.S.
Perhaps the most interesting statistic is that more than 30% of these record sales came from domestic manufacturers. This presents a huge opportunity for investors. Buying shares in Chinese auto stocks now while the sector is red-hot could deliver truly amazing profits in 2010 as the economic recovery gains momentum.
Here are my top 5 Chinese auto stocks for 2010.
Auto Stock #1 – China Automotive Systems (CAAS)
China Automotive Systems (CAAS) is involved in seven Chinese auto parts ventures, and manufactures components primarily for the rapidly growing Chinese auto market. CAAS is focused on making power steering components and systems. Its products include wheel automatic steering assemblies, power steering assemblies, columns assemblies, steering columns, power steering pumps and hoses, as well as power steering rack and pinion gears. This breadth of its business allows China Automotive Systems to capitalize on the general growth trends of China without tying its future to one specific brand or model.
Auto Stock #2 – Hollysys Automation (HOLI)
China’s Hollysys Automation Technologies (HOLI) is a great company to play the ramp-up in Chinese auto manufacturing. HOLI designs automated assembly gear for industrial use, as well as other “peopleless” equipment including safety and control systems. Hollysys takes the human error out of production and operation, saving companies time and money. As Chinese auto companies expand production lines and look to maximize output, that means HOLI gear will be in high demand across the entire sector.
Auto Stock #3 – Toyota (TM)
True, Toyota Motor (TM) is not a homegrown China company, but unlike rivals like Volkswagen or GM, Toyota’s sales in China do not rely on joint operating deals that suck up profits. As a leading Asian automaker, TM easily ramped up production in the region to sell about 700,000 units last year. Looking forward, Toyota has an ambitious target of 800,000 vehicles in 2010. The bottom line is that just like its operations in the U.S., Toyota has developed a large manufacturing and sales network on its own. That means a bigger piece of the pie goes to shareholders instead of getting divvied up among partner companies.
Auto Stock #4 – Wonder Auto (WATG)
China’s Wonder Auto Technology (WATG) designs and manufactures starters, alternators and other automotive electrical parts for passenger vehicles. The company also manufactures rods and shafts, which are used in suspension and shock absorber systems. Although the company earns some of its sales revenue from international customers, most of Wonder Auto’s products are sold to automakers operating in China. Some of its larger customers include Chery, a low-cost Chinese carmaker that has seen explosive sales with its QQ compact, which retails for under $5,000. As lower-class Chinese take to the roads, WATG will play a key role in building the cars they drive.
Auto Stock #5 – China XD Plastics (CXDC)
China XD Plastics (CXDC) develops and manufactures plastics primarily for use in the automotive industry. The wide array of CXDC products includes bumpers, side-view mirrors, steering wheels, glove boxes and safety-belt harnesses. The company is also rapidly branching out into auto heating and air conditioning components, as well as some plastic engine and ventilation components. CXDC current serves more than 30 automobile brands in the People’s Republic, and should continue to grow its sales and customer base as the auto industry continues its growth in 2010.
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