Wednesday July 15, 2009
"Rail stocks are a good barometer of economic health in the US; what about booming China?" asks Brandon Clay. In Invest with an Edge, he eyes Guangshen Railway (NYSE: GSH).
"As such, it stands poised to benefit as China's economy does the only thing it knows how to do: grow. Oddly enough, Guangshen is the only railroad listed on the NYSE based in a country other than the U.S. or Canada.
"Guangshen Railway should benefit from China's growing appetite for infrastructure projects. After all, someone has to move all that steel and other construction materials across a very large country.
"Rail operators like Guangshen will also be counted on to deliver oil, coal, copper and other commodities to destinations throughout mainland China.
"The stock, which yields 2.5%, has returned more than 28% thus far in 2009. Guangshen is reasonably valued compared to other China stocks at less than 19 times earnings for the trailing 12 months.
"Keep in mind this is a mega-cap name, with a market cap of $167B. You can look at it as a core holding for any China portfolio, but don’t expect a grand slam.
"Guangshen actually made money in 2008 while enduring some of the worst headwinds a transportation company can face.
"Hollywood could not have scripted a worse picture for Guangshen, which saw its profits erode due to higher fuel costs, a catastrophic snowstorm, and weak shipping demand. Yet, the company was profitable.
"GSH looks to be a prime beneficiary of China's $500 billion+ economic stimulus package, which is partly responsible for a fourth consecutive increase in the Chinese Producer Manufacturing Index, released today.
"In a hot bed of economic growth with a strong balance sheet, Guangshen Rail is a great way to get involved in China's infrastructure boom. To buy into continued Chinese development, go with GSH."
