BOSTON (TheStreet) --The People's Republic of China, despite talk of a bubble, still offers investment opportunities superior to those in many developed nations, including the U.S. Here are five U.S.-listed China small-caps with outstanding prospects and "buy" ratings.
5. China Automotive Systems
makes power-steering systems and car components.
: Third-quarter profit more than tripled to $8.6 million, or 28 cents a share, as revenue increased 75% to $65 million. The operating margin expanded from 9.1% to 14%. The company holds $55 million of cash and $60 million of debt.
: China Automotive Systems has advanced 669% in the past year, trouncing U.S. benchmarks. The stock trades at a price-to-projected-earnings ratio of 27, a 31% discount to the industry average. Its PEG ratio, a measure of value relative to growth, is low at 0.6. A PEG ratio below 1 implies cheap shares.
: China overtook the U.S. in 2009 to become the world's largest car market. Last year, its domestic industry grew by an estimated 50%. China is spurring growth by offering consumer incentives. Domestic players enjoy preferential treatment.
: Of five analysts surveyed by
, two recommend buying the shares and the remainder advise holding. During the past three years, the stock has gained 37% annually, on average. It ranks in the top 8% of
4. Shanda Interactive
( SNDA) operates online games.
: Fourth-quarter profit increased 8% to $54 million, or 78 cents a share, as revenue soared 49% to $222 million. Shanda's operating margin contracted from 44% to 37%. Its balance sheet contains $1.9 billion of cash and $153 million of debt.
: Shanda Interactive increased 22% over the past 12 months, less than U.S. indices. The stock sells for a price-to-projected-earnings ratio of 11, a 50% discount to the industry average. The shares are also cheap based on book value and sales.
: Internet penetration is rising in China as it tapers in the U.S. Online gaming is a national phenomenon, with roughly 70 million participating. The industry is expected to double in the next few years. Shanda holds a top-three market share.
: Of 21 analysts covering Shanda, 10 recommend purchasing the shares, nine suggest holding and two advise selling. The stock has returned 19%, annually, over the past three years. It ranks in the top 6% of our coverage universe.
3. China Sky One Medical
sells supplements and over-the-counter drugs.
: Third-quarter profit grew 25% to $12 million, or 74 cents a share, as revenue climbed 46% to $43 million. China Sky One's operating margin narrowed from 42% to 37%. Its balance sheet stores $56 million of cash and no debt.
: China Sky One Medical appreciated 52% in the past year, trailing U.S. benchmarks. The stock trades at a price-to-projected-earnings ratio of 5.9, a 64% discount to the peer group average. Its PEG ratio of 0.3 indicates a bargain based on expected growth.
: Concerns about competition and product quality have dogged this stock in recent months, but its diversification into medical-testing kits and bio-engineering products is likely to bolster growth. Its net cash position should reduce trepidation.
: Just three analysts follow China Sky One, and they all advocate purchasing the shares. The most bullish price target comes from
, which expects the stock to rise 77% to $28.50. It places in the top 6% of our coverage universe.
2. Jinpan International
makes transformers for infrastructure development.
: Third-quarter profit soared 82% to $9.4 million, or 58 cents a share, as revenue declined 1.9% to $44 million. Jinpan's operating margin extended from 16% to 22%. Its balance sheet houses $38 million of cash and $26 million of debt.
: Jinpan has quadrupled in the past 12 months, outperforming major indices. The stock sells for a price-to-projected-earnings ratio of 14, a 27% discount to the peer-group average. The shares are also cheap based on book value and cash flow.
: China's $586 billion stimulus has another year of payouts and about 38% is allocated to infrastructure development. Jinpan received an Underwriters Laboratories, or UL, certification in 2009 and is now exporting to developed economies.
: Only two analysts cover Jinpan, but both advocate buying the shares.
expects the stock to appreciate 20% to $29. It has gained 39%, on average, during the past three years, landing in the top 4% of stocks we cover.
sells telecommunications software and IT-security products.
: Fourth-quarter profit multiplied sixfold to $14 million, or 29 cents a share, as revenue climbed 42% to $76 million. The operating margin widened from 15% to 19%. AsiaInfo holds $285 million of cash, equating to a quick ratio of 2.1, and no debt.
: AsiaInfo has soared 143% over the past year, beating major benchmarks. The stock trades at a price-to-projected-earnings ratio of 18, a 14% discount to the industry average. Its PEG ratio of 0.6 reflects a bargain relative to expected growth.
: China's telecom-software spending is expected to grow 15% a year through 2012. One of two telecom users is served by AsiaInfo's systems. Expansion into the IT-security market is a safe diversification as government agencies drive growth.
: Seven of eight analysts that follow AsiaInfo advocate purchasing shares. The stock gained 61%, on average, during the past three years.
Pacific Crest Securities
projects it will climb 43% to $40. It ranks in the top 3% of our coverage universe.
-- Reported by Jake Lynch in Boston.