BOSTON ( TheStreet) -- Many investors stay away from Chinese stocks, preferring funds instead, as scandals dog smaller companies from the world's second-largest economy.
Many investors have asked me for recommendations of highly rated Chinese companies. So I ran a screen of companies based in China with American Depositary Receipts (ADRs) trading on U.S. exchanges. Here are the results for TheStreet Ratings' five top-ranked Chinese stocks based on a quantitative equity model.
NetEase.com (NTES), an online gaming company, leads the pack with a 7.3 overall rating, a "buy" recommendation and a $56.60 target. The stock has achieved our highest reward grade of A+, which measures growth in revenue, earnings and cash flow, along with stock performance/momentum and overall efficiency (or return on equity and capital).
NetEase's stock scores below average in regard to risk (C+), which has kept the overall stock grade at A-. While the solvency of the company looks great (NetEase has nearly $11/share in cash), the volatility of the stock has held back the risk score.NetEase also has a solid valuation score, which measures ratios such as price-to-earnings and price-to-book. At a trailing P/E of 19 and a forward P/E of 13, the stock looks attractive, considering the company has been growing revenue at a 30% annualized rate for the past three years. With analysts expecting an average of 15% earnings growth over the next year, the stock looks fairly inexpensive with a PEG (a measure of earnings growth) ratio of just 0.87. Simcere Pharmaceutical (SCR), a generic pharmaceutical manufacturer, is the second-ranked Chinese stock, with a 5.9 overall rating, a "buy" recommendation and a $16.76 target. The stock has a reward grade of A-, and a risk grade of C, leading to an overall stock grade of B. Simcere's highest scores are on performance (this stock has surged by 49% over the past year) and efficiency -- the company has generated more income per dollar of capital than 70% of companies we review. 51JOB Inc. (JOBS), which runs an online-job portal, has benefited from a booming economy. The company reported significant earnings per share improvement in the most recent quarter. With respect to growth, the company scores better than 70% of the stocks we rate.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV