Since the market's 500-point falloff a few weeks ago was blamed on a drop in the Chinese stock market, more investors have been paying attention to China stocks.
What's interesting is that the Shanghai market is now back to all-time highs, but the U.S.-traded China stocks have not followed. I believe now is the time to take advantage of this spread by buying the top-yielding China stocks that the best investors already have been accumulating.
Another factor that makes this type of investment a solid intermediate-term trade is
plan to launch the Nasdaq China Index in the next couple of months. The index, with the expected symbol of CHNX, will consist of 30 components, which will include stocks from the
New York Stock Exchange
, the Nasdaq and the American Stock Exchange.
Companies will have minimum qualifications for inclusion, which include a minimum average daily U.S. trading volume of 100,000 shares. In addition, the stocks must have a market cap of at least $200 million. You can expect the creation of exchange-traded funds that will attempt to mimic this index to soon follow. But we can start buying the stocks before those ETFs do.
For that reason, we've set up a portfolio of the
on Stockpickr. These are the companies that are demonstrating sustainable growth and earnings and that are rewarding shareholders.
Even in a socialist economy, cash in my pocket is king. It's interesting to work your way down the list of stocks in the portfolio to see which hedge funds and super investors have been diversifying into these most stable China stocks.
If you look strictly at yield, there are several opportunities. The dividend income can help reduce some of the risk. By far, the highest-yielding China stock is
, which boasts an 11.4% yield. It also has very favorable fundamentals, including an extremely low price-to-earnings ratio of 9, a price-to-earnings growth ratio of 0.62. It sells for about half of book value and has $1.5 billion in cash.
According to another portfolio on Stockpickr, the top
Investor's Business Daily
, Aluminum China is a compelling growth stock:
China's biggest aluminum producer and second largest in the world has a three-year earnings growth rate of 47% and a three-year sales growth rate of 33%. The stock has been fluctuating near its 50-day moving average for nearly three weeks.
Second on the list, with a yield of 3.8%, is
, or China National Offshore Oil Corp. It has a P/E of 9.4 and a PEG of 0.32, as well $4.6 billion in the bank.
It's understandable to be worried that companies in communist China can be shut down at a moment's notice. However, Cnooc is a company with billions of cash in the bank that trades at a tiny multiple and returns cash to shareholders.
Worth noting are those super hedge funds that own Cnooc stock.
owns it. This is the fund run by Stevie Cohen that's returned more than 30% per year since it started in the early '90s. That's after taking up to a 50% performance fee, meaning its gross returns before fees (which is all we care about because we're just piggybacking, not investing in the fund) is often 60% or higher.
owns it. This fund is run by Ken Griffin, who started it out of his Harvard dorm room with a $100,000 investment when he was 19 years old. Citadel has turned into an investment behemoth and a recent
profile questioned if Citadel might be the next
One of my favorite hedge funds,
, owns it. Renaissance is very quant-driven and hires only Ph.D.s, but that formula has been very successful. Currently it is raising a $100 billion hedge fund, which would be by far the largest ever. My theory is it's buying every stock that has a lot of cash in the bank and a low P/E ratio.
Another stock on the list that is a play on the nonstop growth in China's economy and the nation's ever-consuming need for oil is
, the largest petroleum company in China. The company is trading at only six times cash flows and counts none other than
among its investors.
Check out Stockpickr's
portfolio to see the rest of the China stocks that make the list -- which also includes
-- as well as to see the other investors making this bet and the P/E ratios and dividend yields of each stock.
Stockpickr tip of the day:
If you like dividends, you might also want to check out a few more portfolios:
- Quality Dividend Stocks, set up by blogger Where-Is-The-Yield.
- IBD's Top 10 Dividend Stocks.
- Income Deposit Securities, stock/bond combinations that pay high yields.
- Over 200 Stocks That Pay Dividends Monthly.
At the time of publication, Altucher and/or his fund had no postions in stocks mentioned, although positions may change at any time.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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