The Best and Worst Stocks in China

The SSE Composite Index, Shanghai's stock exchange and one of the world's largest, finished last week down 0.3% to close at 3,059.72.

If that seems low, it should. News has been shaky in China over the last week or so. Chinese stocks have proven volatile, and last week saw multi-nationals such as Google (Nasdaq: GOOG  ) and Rio Tinto make headlines. Google, for its part, officially redirected traffic from google.cn to its unfiltered engine in Hong Kong, leading Chinese officials to respond by blocking some traffic from that site.

In Shanghai, four Rio Tinto executives were convicted of bribery and commercial spying. Each executive faces seven to 14 years in prison. At least four local steel mills were involved with the bribery cases, Dow Jones reports.

Meanwhile, China's economic cognoscenti appear unready to devalue the yuan as American officials hope. Why? According to a weekend report in The Washington Post, the country's Commerce Ministry fears that exporters would see a thin 1.7% average profit margin on shipped goods wiped out in a currency revaluation.

The biggest pops and drops
Here's a closer look at the best- and worst-performing Chinese stocks of the past week, each of which trades on a major American exchange and is worth at least $150 million in market value. Returns are calculated from the March 19 close.

Last week's winners:

Company

Percent Gain

CAPS Stars

(Out of 5)

NIVS IntelliMedia (NYSE: NIV  )

25.5%

***

SORL Auto Parts

21.4%

****

China Automotive Systems

15.8%

**

ReneSola (NYSE: SOL  )

15.1%

*****

Fuqi International

13.3%

****

Sources: Capital IQ, Motley Fool CAPS, Yahoo! Finance.

Last week's losers:

Company

Percent Loss

CAPS Stars

(Out of 5)

AutoChina (Nasdaq: AUTC  )

(23.6%)

*

Concord Medical Services

(17.8%)

**

China TransInfo Technology

(12.1%)

**

NetEase (Nasdaq: NTES  )

(10.7%)

***

Perfect World (Nasdaq: PWRD  )

(10.4%)

***

Sources: Capital IQ, Motley Fool CAPS, Yahoo! Finance.

A weekly tour of China
The week's top Chinese stock, NIVS IntelliMedia, benefited from a strong fourth-quarter earnings report. Net revenue for the maker of televisions and DVD and MP3 players surged 47%. Per-share profit increased seven-fold. At least one Fool sees the trend continuing.

"Earnings surprise and under-valued small cap Chinese growth stock," wrote All-Star investor EnigmaDude last week. Certainly the numbers look enticing: Shares of NIVS IntelliMedia were trading for just 11 times next year's estimated earnings as of Friday's close. Go-go growers rarely trade for that cheap.

But is this really a growth stock? The lone analyst on record has set a target price ($7.65 a share) but not a long-term growth rate, leaving us to only guesstimate.

Fortunately, the balance sheet offers some clues. NIVS IntelliMedia had $29.8 million in receivables as of December, up 39% from the year prior. Revenue improved by roughly 29% over the same period. That's an extraordinary amount of unearned revenue for such a small company. So long as NIVS can collect, there's enough of a backlog here to fuel outsized revenue and earnings growth over the next year, and perhaps beyond.

On the downside, NetEase.com attracted sellers and the longing eyes of analysts at Auriga USA, which last week initiated coverage with a "buy" rating and a $49 price target, reports Indie Research.

Auriga isn't alone in its love for NetEase. My friend Rick Munarriz has singled out the game developer as a Motley Fool Rule Breakers pick, and several Fools believe it'll see long-term benefits as a distributor of Activision Blizzard's (Nasdaq: ATVI  ) World of Warcraft online game. Here's one of my favorites, SarahGen, explaining the thesis in a February pitch:

They finally got approval for [World of Warcraft], but they're running the old version in mainland China. Approval on getting the 2nd will be a big bump, and if they get approval for the third (coming out later this year) -- then totally watch out! Earnings are soon, and who knows how that will go. Watch the World of Warcraft news for what's really going to happen here.

I'm interested in both these stocks: NIVS IntelliMedia as a speculative short-term growth play, and NetEase as a franchise holder in the world's most important gaming markets. I've added both to my Motley Fool CAPS portfolio.

What do you have to say about these companies? Other Chinese stocks? Log into CAPS today and let your voice be heard. You can also weigh in using the comments box below.

For more coverage of China and the region's best stock ideas, accept a 30-day guest pass to Motley Fool Global Gains. Activision Blizzard is a Motley Fool Stock Advisor selection. Google, NetEase.com, and Perfect World are Motley Fool Rule Breakers recommendations. Motley Fool Options has recommended a synthetic long position for Activision Blizzard and that subscribers write puts for Perfect World. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is also a member of the Rule Breakers stock-picking team. He owned shares of Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool owns shares of Activision Blizzard and is also on Twitter as @TheMotleyFool. Its disclosure policy is as sweet and smooth as Shanghai's Last Gentleman.


Read/Post Comments (1) | Recommend This Article (8)

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.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1139060, ~/Articles/ArticleHandler.aspx, 12/22/2014 12:01:44 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement