The benchmark Shanghai Composite Index is currently trading at a price-to-earnings ratio of more than 18, which is significantly higher than the S&P 500's 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 Zhongpin ( HOGS), AgFeed Industries ( FEED), American Lorain ( ALN) and China Marine Food Group ( CMFO). 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, Unilever ( UL), Kraft Foods ( KFT) and Cadbury ( CBY) trade at P/Es of 14.4, 14.6 and 22.3, respectively. U.S. food majors General Mills ( GIS), Kellogg ( K), Archer Daniels Midland ( ADM) and H.J. Heinz ( HNZ) 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.
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 Bloomberg.