6 Companies Set to Profit From China’s Stimulus

During the last global boom, China was the red-hot leader of world growth. Then the global recession enveloped the world, including China, and sucked the momentum out of China's burgeoning growth. China's GDP growth for 2008 was 9%, down from 13% in 2007.

As a result, China decided to make a bold move to preserve its sizzling economic growth and stave off global recessionary forces. Last November, the government injected a $586 billion economic stimulus package into the local economy. Following that move, the Chinese government is considering a second-round injection that could roll out as early as this week. 

This entire stimulus is targeted at building infrastructure that recently slowed to a turtle's pace after China's export economy collapsed. This all means a big boost for China, and a big boost for investors properly positioned to cash in on China's efforts. Companies that operate in the basic materials sector that serve construction industries and the like stand to benefit -- and so could you. The silver lining is that the government is serious about jump-starting the infrastructure portion of its economy -- both stimulus plans address this -- which means that China will most likely continue to spend money on internal infrastructure until it's thriving fruitfully once again.

To dig up some of the companies most likely to benefit from China's stimulus infusion, I ran a screen using the Motley Fool's CAPS screening tool. My search criteria included:

  • Companies in the basic materials sector
  • Companies with CAPS ratings of four and five stars, the two highest ratings from our CAPS community

Following that, I picked out companies based in China with businesses that focused on providing materials or services that could aid in China's infrastructure build-out. Here are six from that screen that fit the bill:

Company

Similar to

Company Description

CAPS Star Rating

(out of 5)

Aluminum Corporation of China (NYSE: ACH  )

Alcoa (NYSE: AA  )

Engages in bauxite mining, alumina refining, and aluminum smelting. Principal products are alumina and primary aluminum.

*****

China Petroleum & Chemical

Chevron (NYSE: CVX  )

Oil, gas, and chemical company. Explores and develops oil and natural gas; makes chemicals for industrial uses.

****

China Precision Steel

Arcelor Mittal (NYSE: MT  )

Steel maker.

*****

ShengdaTech (Nasdaq: SDTH  )

Terra Industries (NYSE: TRA  )

Producer of ammonia-based fertilizer and nano precipitated calcium carbonate, which is used in the manufacturing of paints, rubber, plastic, and tires.

*****

Yanzhou Coal Mining

Arch Coal

Coal producer and transporter via rail.

****

Fushi Copperweld (Nasdaq: FSIN  )

No direct comparison

Manufactures bimetallic wire products, a substitute to copper.

****

Data from Motley Fool CAPS.

Let's look a little more at Fushi Copperweld. Fushi is China's largest manufacturer of bimetallic wire (copper wrapped around a core of steel or aluminum), which is a substitute for copper and can be cheaper, especially if commodity prices heat up again. The wire is used in a wide range of applications, including telephone lines and network signal transmission cable, among others. As China has said that railroad infrastructure will get an additional $2 billion this year, Fushi could benefit by supplying a major component of the electric railway conductor lines.

These companies are a good starting place for investment research -- but that's all they are. You'll need to dig deeper into the businesses to see not just how much exposure these companies have to the government's stimulus, but whether they really are good companies for you to own. Remain mindful of the company's fundamentals and growth prospects.

Start building a better portfolio at Motley Fool CAPS today! Let the collective wisdom of our 130,000-member-strong investment community help you make better investing decisions.

For Related Foolishness:

Jennifer Schonberger owns shares of Fushi Copperweld and ShengdaTech but does not own any of the other companies mentioned in this article. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (21)

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 April 24, 2009, at 11:14 AM, GorillaGorilla wrote:

    SDTH no longer sells fertilizer. The plant has been shut down.

    rich

  • Report this Comment On April 24, 2009, at 11:27 AM, Alex1963 wrote:

    Jennifer

    Very helpful article on a few companies I wasn't familiar with. Rec #3 from me. I'm overall bullish still on China overall, despite some recent bearish news lately. Thanks to some early bird dogging by Caps when Ist joined I got in on Baidu at $112 and can you believe I'm kicking myself for selling at $186! Who da thunk they'd be at $210 yesterday. Oh well not bad for 3 months either way. I'm also in CHL, STV both again thanks to initial recs to investigate further by Caps staff.

    Don't let all the disgruntled newsletter bashers distract you. Some of still recognize Caps is a for- profit enterprise and of course you're going to offer the subscription services. I would. And I still maintain this site is far more transparent and helpful than the 1/2 dozen others I regularly data mine from. And their premium services are far more expensive and no more accurate overall. There are gems and dogs. Heck if Caps had the track record some members here seem to imply should be expected these newsletters would rightly be priced way higher. But as far as I know from investigating dozens of services etc no one is consistently winning in this market. You still have to rely on, and take responsibility for, your own judgment. No one has to act on any of the tips or opinions of MF staff, or members for that matter.

    Sincerely

    Alex

  • Report this Comment On June 05, 2009, at 10:11 AM, catoismymotor wrote:

    CSR and CFSG are also going to benefit.

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