By Nicholas Vardy, editor The Global Bull Market Alert

By Paul Goodwin, editor The Cabot China & Emerging Markets Report

Two leading international financial newsletter editors remain bullish on the prospects for China Yuchai International Limited (NYSE: CYD), a maker of diesel engines.

Here, we look at recent commentary from Nicholas Vardy (at left), editor of The Global Bull Market Alert and Paul Goodwin, editor of The Cabot China & Emerging Markets Report.

Nicholas Vardy:

Although China Yuchai is primarily involved in the decidedly unsexy sector of manufacturing diesel engines for construction equipment, trucks, buses, and cars in China, its financial results last quarter make it look more like that of a red-hot, high-tech play.

Earnings soared 292% last quarter on a 34% jump in revenue in Q3. And CYD is getting better at what it does: its after-tax profit margins jumped to a record 15.3%.

In addition, CYD has announced a couple of high-profile joint ventures with both Caterpillar (China) and Jirui United Heavy Industry. This news has helped the stock break out of its recent trading range. Nevertheless, the stock remains a bargain in comparison to its U.S. rivals.

While the market cap of rival Cummins, a manufacturer of diesel engines and related technology, equals its annual revenue, CYD's market cap trades at one-fourth that level. Meanwhile, Cummins' revenue is down 31%, while CYD's is soaring.

Also, although I am skeptical of the credit bubble that is being blown in China, that's no reason to stand in the way of a profitable trade.

There is a lot of short momentum in China with Asian stock markets jumping this morning as the Chinese government announced that exports jumped nearly 18% in December, after 13 months of declines.

Paul Goodwin:

Like most of the world outside the U.S., China’s automotive sector is heavily committed to diesel engines. They are sturdy, reliable, cheap to run and will accept a wide range of fuels. The company was founded in 1951, so it has a long history of making diesel engines.

The 'International' in the company’s name refl ects its approval to sell its diesel engines in the environmentally picky eurozone. That certification is a tribute to the company’s substantial R&D staff of more than 370.

One tangible result of this commitment to R&D is the company’s development of a prototype dual-fuel engine that uses either natural gas or diesel fuel or a mixture of the two..

This engine’s lower emissions will make it ideal for municipal buses. Another project is an ISG electric/diesel engine with a 20% reduction in fuel consumption.

Financial results were outstanding last quarter. It’s worth noting that the last four quarters have produced earnings growth of -48%, 268%, -24% and the 292%.

Clearly there are either significant market fluctuations or other transactions going on here, because revenues during the same four quarters were up 16%, 12%, 33% and 34%, respectively.

The chart for CYD is another factor in its favor. After the familiar collapse in 2008 and recovery in 2009, the stock is out to new multi-year highs and has built a nice base since a November rally that lifted it from 10 to 17. The 25-day moving average is just approaching 15—which should provide some impetus.