Three Fertile Chinese Stocks

NEW YORK (TheStreet) - As part of our series based on the Chinese growth story, last week we had recommended four small-cap Chinese food stocks that are poised to ride the opportunity arising out of the country's strong -- and sustainable -- demand for food and agricultural products.

This week, we present another three opportunities for investors looking to gain from China's agricultural growth story.

While the already high food demand is all set to grow even further going forward, the arable land base in China is on the decline due to industrialization, soil degradation and the continued population growth. As a result, the increase in food demand can only be addressed by increasing agricultural productivity, which in turn implies the increased use of both organic and chemical fertilizers.

China is the world's largest producer and consumer of fertilizers, consuming in excess of 60 million metric tons per year, accounting for one-third of total global consumption.

Our picks for this story -- China Green Agriculture(CGA), China Agritech(CAGC), and Changda International(CIHD) -- are fertilizer companies that have posted strong results and are on track to benefit from the rapid market growth.

Despite being significantly smaller than their U.S. peers, Agrium(AGU), CF Industries(CF), and Terra Industries(TRA), these Chinese companies are set to witness exponential sales and earnings growth even though they are currently trading at inexpensive -- and attractive -- valuation multiples.

China Green Agriculture

The company produces and distributes humic acid-based organic liquid compound fertilizers across China through a wholly owned subsidiary.

According to the Ministry of Agriculture, demand for organic fertilizers is estimated to grow at a CAGR of more than 30% over the next several years. The increased demand for organic compound fertilizers stems from the higher consumption of green foods and the need for increasing soil fertility in a sustainable manner with minimal environmental impact.

Sales are likely to zoom from $35.2 million in 2009 to $49.5 million in 2010 and further to $69.9 million in 2011, according to analysts polled by Bloomberg. At $13.6, the company's stock is trading at an attractive PE of 10.4, compared to North American counterparts like Agrium and CF Industries, which are trading at 24.0 and 12.0, respectively.

China Agritech

China Agritech manufactures and sells organic liquid and granular compound fertilizers through three wholly owned subsidiaries -- Anhui Agritech, Beijing Agritech and Pacific Dragon.