Three Businesses in China Will Give You the Whole Story
— "Ahead of the Street" Column, by Mitchell Clark, B. Comm.
While precious metal stocks have become much more attractively valued due to weakness in spot prices, so have U.S.-listed Chinese stocks. In fact, a lot of really fast-growing businesses are on sale now. The trading action in the broader market has seen a lot of these stocks correct significantly from their recent highs.
One company that's a real benchmark stock to follow is E-House (China) Holdings Ltd. (NYSE/EJ). We've talked about this Chinese real estate broker before in this column and what this company says is very useful in terms of getting a feel for business conditions in that country. Like most U.S.-listed Chinese stocks, E-House doesn't report its fourth-quarter and year-end numbers until early March. This time around, it will be very interesting to see what the company says about the price bubble in China's real estate market.
Another important benchmark company to follow is China Agritech, Inc. (NASDAQ/CAGC). I wrote about this company in this column in early January and the stock has been one of the hottest on the NASDAQ.
China Agritech is a fertilizer manufacturer and distributor in China and business is booming. This company isn't widely followed by Wall Street and its market capitalization is only about 250 million dollars. Still, what this company says about fertilizer sales represents an important breakdown of what's happening in China's real Main Street economy. The company just announced a two-for-one stock split, but it doesn't usually report its numbers until the end of March.
Finally, there's one other company that's worth following in China. It's China Automotive Systems, Inc. (NASDAQ/CAAS). This auto-parts company sells power-steering components and represents an important benchmark for China's exports. Just recently, the company signed its first major OEM contract with Chrysler to install electric power-steering units in North-American-made vehicles. There's a revolution taking place in the auto-parts business and the beneficiaries are Chinese companies like this.
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Following these three companies will give you a good understanding of what's happening in China's economy. One thing I've noticed about a lot of public Chinese companies is that management is usually quite accurate when providing visibility for the future. I can't wait for these companies to report their numbers for the fourth quarter. What they say about their businesses is the best yardstick available for speculative investors.