Some Stocks Getting Ready to Start Their Engines
Friday, September 10th, 2010
By George Leong, B.Comm. for Profit Confidential
You don’t have to tell General Motors to go to China and look for growth opportunities. In fact, you don’t have to tell anyone. The world’s automakers know that, to grow, you need to have a presence in China’s auto sector, whether it’s in a venture with a Chinese company or as a standalone manufacturer of vehicles. The auto sector in China remains strong, as the country is the world’s largest auto market, with an estimated 16.5 million vehicles this year, according to the Chinese industry association. Foreign auto companies looking for growth are expanding in China.
The numbers tell it all. General Motors reported a 19.2% year-over-year (yoy) rise in its August sales in China to 181,625 vehicles, according to “The Wall Street Journal.” The firm reported a 41% yoy surge in its sales in China to 1.57 million vehicles. In fact, GM sold more vehicles in China in the first half of 2010 than in the U.S. GM remains largely under U.S. government control as it tries to reinvent itself and pay back the government loans. To do this, GM knows it must grow outside of its domestic market in the U.S. and Canada.
GM predicts vehicle sales in excess of two million in 2010, up from 1.83 million vehicles in 2009. Germany-based Volkswagen said it would invest about $8.0 billion in China over the next three years. Volkswagen is aiming for sales of two million vehicles by 2018. Japan-based Nissan Motor wants to sell 900,000 vehicles annually by 2012, according to Bloomberg.
Vehicle sales in China surged 18% yoy in August, according to The China Passenger Car Association. And, with only about 41 in 1,000 Chinese owning a vehicle according to some industry pundits, there is clearly ample room for growth, especially as the income levels continue to rise. This trend will continue to drive vehicle sales going forward to the point where China will likely remain the top auto market in the world.
The area of expensive or luxury vehicles is also booming in China. The middle class is growing at a staggering pace, with more millionaires being created. When consumers find wealth, a big-ticket item they buy is a vehicle. The richer they become, the more they spend on vehicles. The sale of luxury cars increased around 65% yoy in the first quarter of this year, according to auto industry researcher J.D. Power and Associates. The rate is well above what we are seeing in other industrialized countries.
There are numerous ways to play the Chinese auto sector. You can buy an auto company with exposure to China, such as the major global automakers. Alternatively, you can also buy Chinese auto-parts makers. Some Chinese auto plays that we have covered in the past include Brilliance China Automotive Holdings (OTCBB/BCAHY.PK), China Automotive Systems, Inc. (NASDAQ/CAAS), Wonder Auto Technology, Inc. (NASDAQ/WATG), SORL Auto Parts, Inc. (NASDAQ/SORL), and AutoChina International Limited (NASDAQ/AUTC).
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
