I recently wrapped up a 10-day tour of China, visiting Beijing, Shanghai, Shenzhen, Hong Kong and Macau and observing the current state of the Chinese economy. And let me just say, China is on the road to recovery.
In general, my observations indicate that China’s economy is already in the recovery phase. The real estate sector is improving, as the volume of home sales doubled in March from the previous month. This bodes well continued strength in China’s recovery in the upcoming months, as the property sector is one of the most important segments in the Chinese economy.
And real estate isn’t the only area that’s helping to support the Chinese economy. State-owned enterprises (SOEs) are benefiting from the Chinese government’s stimulus plan and banks’ increase in lending. Their strength is providing employment opportunities and is keeping money flowing into the Chinese economy. As a result, many of these SOEs have seen their share prices increase dramatically.
So outside of exports, the Chinese economy continues to exhibit robust growth with government-controlled and domestic consumption sectors showing strength and supporting the economy. And that’s why I continue to believe the Chinese economy will fully recover in the second half of this year and continue to provide us with incredible opportunities to profit from its strength. Here are three of the best China stocks to buy now.
Top China Stock 1 – China Aluminum (ACH)
Overall, China currently consumes one-third of the world’s aluminum and alumina, and with the new stimulus package, the country’s aluminum demand is projected to grow 15% in 2008. And China Aluminum (ACH) is at the forefront of supplies.
I’m expecting China Aluminum’s production growth to clock in at 20% as a result of strong demand from the economic stimulus package. That’s because with more funds invested in infrastructure, the need for alumina and aluminum will likely rise. And ACH should be a top beneficiary of this.
I first recommended ACH back in May 2006 as a way to take advantage of China’s booming infrastructure sector. After holding the company for about 18 months, I recommended selling ACH for 285% profit in November 2007 to avoid losses in the correction of the Chinese stock market that I was expecting.
Talk about good timing. The stock lost 82.5% after we sold it due to the commodities sell-off and correction in Chinese stocks. And now these dirt-cheap levels coupled with the infrastructure support by the Chinese stimulus package are offering us a great buying opportunity again.
Right now, China Aluminum is trading at only 8X 2009’s earnings and 4X trailing 12-month earnings. In fact, since I e-recommended ACH in November 2008, the stock is up a whopping 172%! And considering that China is the fastest-growing aluminum market in the world and ACH is the largest producer of alumina and aluminum in China, you can
see the incredible opportunity we’re facing right now.
Top China Stock 2 – New Oriental Education (EDU)
My next stock is a great way to profit from China’s education boom. China’s education sector is growing even faster than its
economy as a whole.
The demand for English-language education is particularly strong in China right now, and people are willing to pay a lot of
money for training that will enable them to communicate and conduct business globally. As China’s largest private education services company, New Oriental Education & Technology (EDU) is the way to play this powerful trend.
The Chinese government recently made English language education mandatory for all high school graduates, so you can see what a good position New Oriental is in. I believe EDU will become an educational vanguard to the next generation of Chinese workers by helping them with the training they need to participate in the global economy. EDU is a great way to profit from China’s education boom — especially when you consider our 123% gain since I recommended it.
Top China Stock 3 – E-House (EJ)
China’s real estate industry has expanded rapidly in recent years due to several factors: the growth of the Chinese economy, an accelerating trend towards urbanization, an increasingly affluent urban population and governmental reforms in the real estate sector.
Until recently, all of the major Chinese real estate development companies were listed in Hong Kong and the Mainland. But finally, one of China’s top real estate marketing and brokerage companies got listed on the New York Stock Exchange in July 2007.
Founded in 2000, E-House (EJ) is a leading real estate service company in China. It has a large scope of services, good brand recognition and a strong geographic presence. The company provides primary real estate agency services, secondary real estate brokerage services as well as real estate consulting and information services. More on E-House here.
EJ’s sharply higher business, low analyst expectations, successful new business and improving fundamentals all point to higher prices for the stock. The stock is already up 80% since March, and the move is just getting started. Given improving fundamentals, E-House can rally another 80% from current levels to $20 by year-end. E-House is one of the few rare situations when investors should double down on their holdings to help their portfolios recover.
