This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

How to Profit From Economic Growth in China: Daqin Railway

NEW YORK (TheStreet) -- Investing in railroads has played a major role in the creation of many of the greatest fortunes in history. Charles Crocker, Henry Morrison, Jay Gould and Mark Hopkins, Jr.,  were some of the "robber barons" from 19th-century America that accumulated significant wealth from investing in railroads. For those now looking to profit from the railroads, Dinaker Singh, founder of the hedge fund TPG-Axon, recommends Daqin Railway (6016006 CH), a Chinese railway.

Speaking at the "Invest for Kids" conference in Chicago in late October, Singh stated that, overall, stocks in Asia are selling at a discount. Economic growth has slowed in China. Japan is still struggling to pull out of "The Lost Decade."

Situations like those create opportunities for investors, which Singh now sees in Daqin Railway, which is one of the 50th largest firms listed on the Shanghai Exchange, based on market capitalization.

Operating several railways in China, Daqin Railway went public in 2006. According to Singh, Daqin is undervalued; its price-to-earnings multiple of around 8 is about half that of Union Pacific  (UNP - Get Report), Kansas City Southern (KSU - Get Report), CSX (CSX) and Norfolk Southern  (NSC). Guangshen Railway  (GSH), another Chinese railway firm listed on The Big Board, trades for a price-to-earnings ratio of around 18, too.

Singh is also impressed by the management and balance sheet of Daqin Railway.

He noted the sustained growth in profits. There is also a 7% dividend yield, which is protected by the charter of the company and the high level of government ownership. By contrast, Guangshen Railway pays a dividend of 2.16%. The yield for Norfolk Southern is just more than 2.40%; just under 2.25% for CSX; around 2.00% for Union Pacific; and for Kansas City Southern, it is about 0.70%.

For Daqin, its revenue and the prices it charges are increasing. It has the market position to raise the rates it collects. The demands of the Chinese economy increase the need for railroad hauling, as it is the most fuel-efficient means of transportation.

There has always been a demand for railroad investments in the holdings of Warren Buffett, too.

In 2009, he bought Burlington Northern Santa Fe, the second-largest railroad company in North America, in a deal valued at $44 billion for the Berkshire Hathaway (BRK.A) portfolio. Before acquiring Burlington Northern Santa Fe, Berkshire Hathaway owned 9,558,000 shares of Union Pacific and 1,933,000 shares of Norfolk Southern. Those shares were sold due to the purchase of the competitor. As his single favorite indicator for economic health, Buffett has stated that it is rail car loadings.

Daqin Railways is in a good place, as economic growth is starting to rebound again in China. Beijing is also focused on stoking consumer demand in the world's most populous country, as reported in another article on TheStreet. There is also a greater emphasis on protecting the environment in the People's Republic. Those factors and more should increase the need for railway services.

On the other hand,  Daqin Railways is in a bad place, at least for American investors, because it is listed on the Shanghai Exchange.

However, shares can be bought, with some effort.  Based on Singh's remarks, though, the end result looks well worth it. He has also performed significant due diligence on the company.

With growth and a higher dividend projected for the future by a very accomplished investor, those looking for profitable long-term total returns should consider taking a ride with Daqin Railways.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Yates is a financial writer who has had thousands of articles appear in periodicals and Web sites such as TheStreet, Newsweek, The Washington Post and many others. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
KSU $116.03 0.19%
UNP $118.33 0.10%
AAPL $126.41 -1.66%
FB $81.21 0.39%
GOOG $575.33 0.34%

Markets

DOW 18,135.72 +38.82 0.21%
S&P 500 2,101.04 +2.51 0.12%
NASDAQ 4,982.8090 +15.6680 0.32%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs