Are Big Money Investors Wrong About China Yuchai?

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: China Yuchai International (NYSE: CYD  ) . Are institutions bullish or bearish when it comes to this Chinese maker of diesel and natural gas engines?

Foolish facts

Metric

China Yuchai

CAPS stars (out of 5) ****
Total ratings 385
Percent bulls 91.4%
Percent bears 8.6%
Bullish pitches 43 out of 46
Highest rated peers WABCO Holdings, Westinghouse Air Brake, Astec Industries

Data current as of Jan. 27.

How about a test to kick things off? Try to name a losing Chinese stock. Difficult, isn't it? China Yuchai benefits from that same brain-blanking bullishness. The stock has more than doubled over the past year, easily besting the S&P 500's 18% gain.

But there's also growth to support the uptrend. As my Foolish colleague Sean Williams points out, China's move to adopt more heavy-duty yet efficient diesel engines creates a big market for the company's products. Demand is such that, for the first time in two years, the Sino Superpower was a net importer of the fuel in December.

"With infrastructure expansion going forward in China at its current rate, the demand for engines is going to keep increasing. [China Yuchai] has plans for expansion to meet this demand and has invested huge amounts in R&D. If the government doesn't get in the way, sales can only go up," wrote Foolish investor dudlecf in October.

Institutional ownership history

Top Owners

2007*

2008*

2009*

Latest*

Coomber Investments

6,709,322

6,709,322

6,709,322

6,708,181

Shah Capital Management

1,273,548

2,197,845

2,126,061

2,101,320

Old Mutual Asset Management US

-

-

733,350

1,501,405

Omega Advisors

-

-

-

664,409

Tai Tak Securities Asset Mgmt.

-

-

539,448

539,448

TOP 25 TOTAL

10,538,150

10,238,417

12,113,425

14,963,644

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Big Money investors appear to feel the same way. Three of the top five owners opened their positions in 2009. Omega Advisors didn't begin investing until last June, and then tripled its stake in the September quarter.

Not all investors as enthusiastic as Omega, however. Top owner Coomber Investments cut back on its stake right around the time Omega began buying. Among mutual fund managers, John Montgomery of Bridgeway Micro-Cap Limited (BRMCX) reduced his fund's exposure to China Yuchai by 25% in Q3, Morningstar reports.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

BYD Co. 17.65% 44.55%
Caterpillar (NYSE: CAT  ) 67.89% 0.28%
China Yuchai 36.78% 0.27%
Cummins Inc. (NYSE: CMI  ) 92.15% 0.54%
Navistar International (NYSE: NAV  ) 99.68% 0.57%

Source: Capital IQ. Data current as of Jan. 27.

China Yuchai has a good but not great ownership profile when compared to peers. Frankly, I like Rule Breakers pick BYD's profile a lot better, and not just because the auto-making conglomerate is also dabbling in Windows tablets.

Caterpillar also looks like a winner with less than 68% of institutions owning the stock at current prices. (Though that may not last long after this week's blowout earnings report.)

So is China Yuchai worth buying? At eight times earnings, the stock looks enticingly cheap. But I'm also a fan of Montgomery's, and I'm loath to buy in if his models are telling him now's the time to sell.

Do you agree? Disagree? Let me know you would rate China Yuchai using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

What will be the big trends of the next five years? We asked our top equity analysts that question and they came back with five stocks we've put real money behind. We profile all five picks in a new special report. Get instant access by clicking here -- it's free.

Interested in more info on the stocks mentioned in this story? Add Caterpillar, Cummins, China Yuchai International or Navistar International to your watchlist.

BYD Co. is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 28, 2011, at 3:43 PM, invst2009 wrote:

    Many factual errors around the ownership.

    First, huge insider ownership. HLA owns 28% and the local government owns 18%

    Second, insitutional ownership has been exploding, dozens of new investors and very very few sales.

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