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China Food Stocks Make For Tasty Bets

NEW YORK ( TheStreet) -- Three China food stocks -- Zhongpin (HOGS), American Lorain (ALN - Get Report) and China Marine Food Group (CMFO) continue to witness demand growth in the domestic market.

These stocks have lost 22%, 23% and 21%, respectively, during the last two months or so. In comparison, the S&P 500 has declined 12% during the same period. Moreover, these stocks are trading at forward price-to-earnings ratios of 6.48, 4.18 and 6.88, respectively.

We reckon that the selloff has been overdone, thereby presenting an attractive buying opportunity based on fundamentals.


Zhongpin is one of the leading meat processors in China, focused primarily on the processing and distribution of pork products. The pork market in China is the largest in the world, accounting for half of global production and consumption. It is projected to grow at a compound annual growth rate of 15% until 2012, making Zhongpin one of the major beneficiaries of this growth.

The company in May said first-quarter net income increased 37% year over year to $13.3 million on revenue growth of 33% to $204.3 million.

Looking forward to 2010, the company estimates its total production capacity to reach about 740,000 metric tonnes, representing an increase of 20% over 2009 levels. Moreover, revenue is forecasted in the range of $900 million to 940 million, a year-over-year increase of 24% to 30%.

Last month, Piper Jaffray rated the stock overweight with a price target of $20, implying an upside of almost 100% over current levels.

American Lorain

American Lorain develops, manufactures and sells over 230 different products, which include chestnut products, convenience foods and ready-to-cook and ready-to-eat foods in China.

The company reported revenue of $24.6 million for the quarter ended in March, up 16% year over year. Net income increased 6% to $1.86 million from $1.75 million in the same period a year ago.

Furthermore, the company began promoting sales of open-bottom frozen chestnut at Lorain-branded retail food counters in 40 locations, which it plans to expand to 70 in Beijing and Chongqing. The company expects to generate total revenue of $3.6 million from these counters.
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