The benchmark Shanghai Composite Index is currently trading at a price-to-earnings ratio of more than 18, which is significantly higher than the
P/E of 15.2..
But small-cap Chinese stocks listed in the U.S. continue to remain undervalued as a result of limited interest from institutional investors and a lack of research coverage by U.S. brokers, say market experts. The scenario clearly presents ample opportunities for investors to ride on the growth story of companies in emerging markets.
One such opportunity to watch out for is in China's food sector. The country is home to the world's largest population with rising disposable income and as a result select small-sized companies are recording exponential sales growth.
These stocks include
China Marine Food Group
All of these companies are trading at a P/E of less than 9, a 40% discount to the U.S. stock markets and a 50% discount to the domestic Chinese market.
In comparison, the largest food companies globally,
( KFT) and
( CBY) trade at P/Es of 14.4, 14.6 and 22.3, respectively.
U.S. food majors
Archer Daniels Midland
trade at a P/Es of 15.3, 14.8, 9.5 and 16, respectively.
Strong economic growth and rapid urbanization are leading to rising disposable incomes and a burgeoning industrial middle class population in China. This is resulting in changing dietary patterns which translate into strong and sustainable demand for food and other agricultural products.
The company is a leading processor and distributor of meat and food products in China. Its product line includes 314 meat products including chilled pork, frozen pork, and prepared meats, and more than 20 vegetable and fruit products that are sold under the "Zhongpin" brand.
China's dietary patterns are changing in favor of higher protein consumption and therefore, meat products. China is the largest market for pork in the world, accounting for half the global production and consumption, and is projected to grow at an average annual rate of 15% until 2012.
Zhongpin, being a vertically integrated company with a strong franchise, expanding customer base, and a healthy balance sheet, is well-positioned to achieve and sustain a longstanding leadership status. Sales are likely to zoom from $726 million in 2009 to $948 million in 2010 and to $1.14 billion in 2011, according to analysts polled by
. At about $12.70, the stock is trading at an attractive P/E of 8.
Another stock to play China's high protein consumption story is Agfeed. The company manufactures and sells feed for use in the domestic animal husbandry market, primarily for hog production. The company also produces hogs for slaughter and sells breeding stock.
AgFeed's stock crossed $5 last month after the company announced record revenue for 2009, a year that saw production volumes climbing 66% in the hog division and 56% in the animal nutrition business. However, the price has since corrected to $4.40 and is trading at an attractive P/E of 7.5, implying a good buying opportunity for investors. Sales are projected to soar 42% to $246 million during 2010 from $173 million in 2009, according to analysts polled by
American Lorain is an integrated food manufacturer producing chestnut-based products and convenience foods, along with frozen, canned, and bulk foods. Its products are sold across 26 provinces in China and in 43 markets across the globe.
The company is in the midst of a transition from a dominant niche player in the chestnut segment into a full-service packaged food player. The company added about 1,400 retail stores during the last quarter of 2009 bringing the store count to 3,500 and expects this to touch 8,000 stores by the end of the year.
Announcing strong fourth-quarter results last week, American Lorain issued 2010 revenue guidance of $182 million to $190 million, growth of 24.1% to 29.5% over last year. At $3.60, the stock is trading at a P/E of 6.3.
China Marine Food Group
China Marine Food Group is a seafood processor with 21 products under the "Mingxiang" brand in the seafood snacks market and is supported by a strong distribution network spanning six provinces.
Growth in seafood-based convenience food consumption in China is being driven by consumers shifting to a high-paced lifestyle and in the process seeking convenient food alternatives without compromising on nutrition and hygiene. According to the Food and Agriculture Organization, China's seafood consumption is expected to reach 35.9 kg per capita by 2020 from 9.3 kg in 2007.
China Marine Food has undertaken several initiatives including doubling production capacity to 20,000 tons over the past two quarters, increasing its distribution network to 1,200 retail stores, developing new products catering to evolving customer tastes and pursuing strategic acquisitions.
According to analysts polled by
, sales are expected to nearly double to $134 million in 2011 from $69.6 million in 2009. The stock is trading at $6.50, which represents an attractive P/E of 8.8.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider HOGS, FEED, ALN and CMFO to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.