Don't Miss Your Chance At 184% Profits!
The Dynamic Wealth Report
July 15, 2010
by Robert Morris, Editor
Last week I shared my thoughts on China. I gave you my outlook for the
Chinese economy and Chinese stocks. If you missed my article, Bargains
Galore In China, you can read it
here.
In a nutshell, I see China maintaining a strong growth rate this year
and next. And I expect Chinese stocks to stage a big rally over the next
year.
Some investors are worried the Chinese economy is slowing too much. They
point to today’s second quarter GDP report as evidence China is sliding
into recession.
I say they’re overreacting.
Yes, GDP growth dropped from the first quarter’s blistering 11.9% pace. But it still grew at an enviable 10.3% rate. Compare that to the U.S.
which is growing at just 3% to 3.5%.
China looks pretty burly to me.
And the International Monetary Fund agrees. They see strong growth ahead
for China. They’re projecting China’s GDP will grow 10.5% this year and
9.6% next year.
Not too shabby.
Even if GDP growth drops to 9% as some fear, that’s still robust enough
to drive strong corporate earnings growth. And strong earnings should
propel Chinese stock prices significantly higher.
Last week’s article prompted a huge response from DWR readers. Many
agreed with my bullish outlook for China. And several asked for the
names of a few Chinese stocks to buy.
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I’m more than happy to oblige.
I ran a screen looking for fast growing Chinese companies with misvalued
stocks. Specifically, I looked for companies expected to grow earnings
this year and next. Then I narrowed the list down to stocks trading at a
big discount to projected earnings growth rates.
One company on the list caught my eye… Harbin Electric (HRBN).
Harbin is a leading manufacturer of electric motors for a wide variety
of commercial uses. The company’s major product lines are industrial
rotary motors, linear motors, and specialty micro-motors. These products
are sold to a large number of domestic and international customers.
You’ll find the company’s motors in almost every sector of the economy.
Harbin has customers in industries like energy, factory automation, food
processing, packaging, and transportation. They also sell motors to the
automobile, medical devices, manufacturing, chemical, metallurgical, and
mining industries.
Harbin’s sales and earnings are going gangbusters.
Take a look at first quarter numbers. Revenue soared 243% to over $105
million. Part of the huge increase was due to an acquisition. But even
without the acquisition, revenue nearly doubled over last year’s quarter.
Net income skyrocketed 137% to just over $20 million. Earnings jumped
69% to $0.66 per share. And earnings beat estimates by a healthy 35%
margin.
That’s the fifth straight quarterly upside earnings surprise!
As a result of the strong quarter, analysts have raised estimates for
this year and next. They’re now expecting earnings of $2.81 for 2010 and
$3.08 for 2011. Remember, rising earnings estimates tend to drive a
stock’s price higher.
The next earnings release could be a big catalyst for the shares.
Second quarter earnings are scheduled for August 9th. Analysts are
looking for $0.71 per share. That’s an increase of 115% over the year
ago quarter. Another upside surprise could really get the shares moving
higher.
Some are concerned China’s efforts to cool off their housing market will
hurt Harbin’s growth. But management disagrees. The company’s CEO
recently said, “We do not expect a slowdown in the real estate sector…
to negatively impact our business.”
Why’s he so confident?
You see, Harbin’s business “is a key foundation of China’s overall
economic growth and supports a wide range of economic sectors…” In other
words, the company’s widely diversified business protects against
slowdowns in any one economic sector.
Despite the company’s surging growth, the shares are extremely misvalued.
At a recent price of $17.63, HRBN is trading at just 6.3x the 2010
estimate. That’s a very low P/E for a company projected to grow earnings
20% a year over the next five years. In fact, it produces a PEG ratio of
just 0.32.
This means HRBN is trading at a 68% discount to the company’s projected
growth rate.
Clearly, these shares have huge upside potential. Using the industry
average P/E of 17.9x, HRBN could easily trade up to $50 a share over the
next six to nine months.
That’s a whopping 184% higher from here.
Take a closer look at HRBN for your own portfolio. I think they’re a
great way to play the coming rally in Chinese stocks.
• Natural Gas ETFs Surging
The scorching heat wave sweeping the U.S. is boosting demand for natural
gas. Power plants are consuming more than usual to keep air conditioners
running overtime. As a result, natural gas prices are jumping the most
in six months. Natural gas ETFs are likewise surging higher today:
United States Natural Gas (UNG) is jumping 5.5% and
iPath DJ-UBS Natural
Gas Trust (GAZ) is up over 5%.
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