With a massive, growing economy and a ballooning middle class, China represents a major opportunity for many American companies. Here's why Walt Disney (NYSE:DIS), Apple (NASDAQ:AAPL), and Cheniere Energy (NYSEMKT:LNG) are well-positioned to benefit from the continued rise of China.
The world's most beloved entertainment company
Beth McKenna (Walt Disney): I can't think of a better way to profit from the ever-rising number of Chinese citizens joining the middle class than to invest in Disney stock. Last June, the legendary entertainment giant opened its first theme park in mainland China, the massive $5.5 billion Shanghai Disney, as it aims to capture the ballooning disposable dollars of many Chinese consumers.
So far, Disney Shanghai's results have surpassed the company's expectations. The park had hosted more than 7 million guests at the time of the company's first-quarter earnings call on Feb. 8. Disney's management has said on the last two quarterly earnings calls that the park is expected to come very close to breaking even in fiscal 2017, which is impressive given how new it is and its humongous cost to build. This, of course, means that the park should start contributing to Disney's profits in fiscal 2018.
Disney has been delighting people in the Western world for generations with its iconic theme parks, as well as its movies, TV shows, and dizzying array of consumer products. So, there's every reason to believe that the Chinese people and visitors to China will come to love Disney Shanghai just as much as Americans and visitors to the United States adore Disneyland and Disney World. That, coupled with Disney's unmatched intellectual property of characters makes Disney a great stock to own as China's economy continues to expand in the decades ahead.
Trouble and opportunity
Tim Green (Apple): Apple has been having all sorts of trouble in China lately. Total sales in China dropped 12% year over year during Apple's first quarter despite a rise in global revenue. This disappointing result was actually an improvement: Fourth-quarter sales in China tumbled 30% year over year, and third-quarter sales crashed 33%.
Apple's weak performance in China during the past few quarters doesn't mean the company's growth opportunities in the country are dead. Apple faces intense competition in China from local companies as well as Samsung, and its brand doesn't quite have the same power as it has in the U.S. But an innovative product -- perhaps a revamped iPhone 8 later this year -- could reverse its fortunes and force its rivals to scramble to keep up.
Regaining market share in China won't be easy, and it's possible that competition is just too fierce for the company to both grow sales and maintain its margins in the country. Flagship phones from Chinese companies selling at a fraction of the price Apple charges will be tough to beat. Apple will need to come up with something truly unique to drive sales higher. It certainly has the resources to do it.
Filling one of China's largest needs
Tyler Crowe (Cheniere Energy): There are countless stories about the size and scale of China's thirst for commodities. Ever since China switched gears to a more market-driven economy, demand for basic materials and energy has grown by a staggering amount. Recently, though, we have seen a shift in the types of commodities China wants, and those shifting trade winds are opening up new opportunities, namely in liquefied natural gas (LNG).
One thing that China has been working on rather remarkably in recent years is reducing pollution in its cities. The biggest culprit for air pollution has been burning coal for power, making steel, and other industrial practices. So the country has been shifting away from coal. In fact, in January China announced it was canceling prior plans to install 120 gigawatts of coal-fired power plants -- that's equivalent to 10% of the U.S.' total generation capacity. With incomes growing and urbanization still happening at a rapid rate, China is going to need to fill those energy demands, and LNG is going to be one of the major power sources to fill that gap.
We're already seeing this happen. In 2016, total imports of LNG into China increased 32.8% to 26.06 million metric tons, and that is expected to grow to more than 105 million metric tons per year by 2030. There are few companies out there better positioned to take advantage of this coming LNG boom than U.S.-based Cheniere Energy. As the U.S.' first LNG exporter, the company already sent 10% of its 2016 cargoes to China, and that was only from two of the possibly 11 liquefaction trains that Cheniere has on the docket to develop over the next half decade.
Some might argue that Cheniere will struggle to deliver to the Asian market because of its locations in the U.S. Gulf Coast. Transporting LNG via ship is expensive and there are a lot of LNG export terminals coming online in the Pacific Rim. That has yet to be an issue, as the company's access to cheap domestic gas offsets these costs. In fact, 28% of its 2016 sales were to the Asia Pacific region, so that higher transportation cost hasn't really become an issue for the company yet.
China's policies can shift on a dime from time to time, but betting on LNG and Cheniere Energy is a smart move as the country cleans up its energy act.
Beth McKenna has no position in any stocks mentioned. Timothy Green has no position in any stocks mentioned. Tyler Crowe owns shares of Apple and Walt Disney. The Motley Fool owns shares of and recommends Apple and Walt Disney. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.