Why You Need to Watch This Chinese Rail Stock in Spite of Stalling GDP Growth

GDP growthAmerica was built and linked by the railroad that spans the nation, connecting the Pacific and Atlantic oceans. The railroad has great importance, as people use it for travelling and companies for transporting their goods. Without the railroad, commerce wouldn’t have been able to grow as much as it did heading into the 20th century.

An ocean away in China, we have also been seeing an economic revolution that may be stalling but, in my view, continues to be one of the top growth markets in the world longer-term.

While there are many that would argue this, I’m not in that camp. (Read “How to Buy Blue Chip Chinese Stocks on the Cheap.”) Yes, the near term could pose issues in China as far as its stalling GDP growth, but I simply cannot ignore the massive potential there, given the country’s population and increasing trading partners and global markets.

One area of major growth has been China’s expansion of its transportation network, whether it’s roadways, air space, or rail. Just like America, China needs to expand its transportation network to allow its companies to flourish and to connect its 1.3 billion citizens.

China’s Premier, Li Keqiang, said that he wants to increase the rate of development of China’s railway network via a specific development fund, according to Bloomberg.

A mid-cap Chinese railroad stock that I have been following for a while is Guangshen Railway Company Limited. (NYSE/GSH). The company trades in the U.S. via its American depositary shares (ADS).

The company’s key focus at this time is its passenger services. This network includes the Guangzhou–Shenzhen inter-city train service, long-distance passenger, and the Hong Kong Through Train passenger service that is operated with MTR Corporation in Hong Kong. (I have personally ridden the popular Guangzhou-Shenzhen and Hong Kong lines.)

                                              GSH Gaungshen Railway Co Ltd Chart  Chart courtesy of www.StockCharts.com

The freight business moves full-load cargo, single-load cargo, containers, bulky and overweight cargo, dangerous cargo, fresh and live cargo, and oversized cargo.

The heart of its rail network is its 299-mile Shenzhen–Guangzhou–Pingshi railway that transports both people and freight. In fact, the route is found in China’s key economic development zones.

Growth has been stellar with revenues increasing in each year from $409.95 million in 2002 to $2.42 billion in 2012.

While the stock is well up from its 52-week low of $13.97, I still see above-average growth opportunities for the aggressive investor with a longer-term view. But be careful, as the chart shows a near-term decline and possible upcoming weakness that could be a buying opportunity.