"A focal point of China's ambitious $586 billion stimulus package will be railroadsl in fact, investment in railways has already tripled over this time last year." explains value Investor Nathan Slaughter.

In his Half-Priced Stocks he adds, "Guangshen Railway Limited (NYSE: GSH) looks to be an obvious choice to benefit from this trend. Indeed, pricing flexibility, stellar efficiency and utilization has made Guangshen the most profitable rail company in China."

"Growth in China's railways doesn't come as a surprise. Years before this plan was put in motion, China already had bold ideas about building out its railway system -- and was bankrolling those ideas with about $200 billion in government cash.

"And now, those commitments will be supplemented with an additional $100 billion earmarked from this latest stimulus package. 

"To be sure, the sprawling country is certainly in need of additional rail capacity, and many rural areas have no service at all.

"Meanwhile, we all know that China has a ravenous appetite for iron ore, petroleum, coal and just about every other raw material.

"Much of the nation's commodities production takes place in the Western provinces, and those goods must then be shipped to population centers and economic hubs on the Eastern seaboard.

"However, the Chinese Railway Ministry estimates that railroads can only handle about 35% of the country's massive cargo demand -- the other two-thirds must be carried by less efficient means of transportation.

"But this is all changing. Thanks to heavy investment from both foreign and domestic sources, more than 10,000 miles of new railroad networks will be on the ground within the next few years.

"Guangshen Railway Limited operates both passenger and freight lines, and it's sitting on some prime real estate -- including routes between Guangzhou and Shenzhen, as well as the only network linking Hong Kong with the Mainland.

"Despite damaging earthquakes, record snowfall and other headaches, GSH still carried about 83 million passengers to their destinations last year -- representing volume growth of +15%.

"And the company has started off 2009 on the right foot, posting healthy double-digit first quarter gains in both revenues and earnings. Going forward, recent acquisitions and continued optimization of existing lines should lead to solid (though not spectacular) growth.

"I like the fact that GSH is sitting smack in the middle of the Pearl River delta of Guangdong Province, among the most affluent and rapidly expanding regions in all of China.

"This is a heavily traveled artery, and the company has it all to itself -- as a state-owned enterprise, I don't see many competitors being allowed in.

"The shares are currently approaching a 52-week high, but I think they could continue on this path and take investors on a quick ride to fair value at $30. Nevertheless, the stock is still best suited to risk-tolerant investors, preferably with a wide +25% or greater margin of safety."