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:

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

Last week's losers:

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.