4 China Energy Stocks With Upside of 18%-82%

NEW YORK (TheStreet) - ReneSola (SOL), Trina Solar (TSL), JA Solar Holdings (JASO) and China Petroleum & Chemical (SNP) have upsides in the range of 18% to 82% based on analysts' consensus estimates of 12-month target prices.

In comparison, global oil and gas giants Exxon Mobil ( XOM), Total ( TOT), BP ( BP), ConocoPhillips ( COP) and Chevron ( CVX) have a 3% to 12% upside.

The four Chinese energy stocks likely will benefit from the growing demand for energy worldwide. Global oil demand is expected to breach the peak pre-recession levels seen in 2007, according to Wood Mackenzie, the independent energy and metals research consultant firm. Emerging economies such as China are leading the recovery in energy demand, post-crisis. Diesel and gasoline demand are continuing to grow at around 8% annually in China, while global demand for crude oil grew 1.5% to 2% in 2010.

Clean Edge, a research and advisory firm dedicated to the clean energy sector, indicates that annual revenue from solar, wind and biofuels would increase from $145 billion in 2009 to around $345 billion in the next decade.

These four stocks are trading at attractive forward price-to-earnings ratios in the range of 4 to 8. All four stocks received 65% to 86% buy ratings.

The stocks are stacked in terms of percentage upside, great to greatest.

China Petroleum & Chemical, or Sinopec, is a China-based integrated oil and gas and chemicals company. Sinopec, China's largest refiner, owns eight 8 of the top 10 refineries in the country.

Puguang Gas Field reported annual production and transportation capacity of around 12 billion cubic meters (bcm). Total production is expected to peak to 15 bcm per year after the Yuanba block comes onstream by 2012. Management expects Puguang's main block to hold enough gas for more than 20 years, based on the current production rate of 12 bcm per year.

Beijing's new refined oil pricing mechanism, effective since the end of 2008, has turned Sinopec's refining business around after years of incurring losses. Although rising international crude oil prices may hamper refining margins, analysts expect a limited downside given the moderate crude oil price projection of $90 a barrel for 2011.

The stock rose more than 23% during the last one year. Triggers like upstream asset injections from parent company China Petrochemical Co., renminbi appreciation and changes in its refined products' pricing mechanism could push the stock's price higher. The stock is trading at around 7.2 times its estimated 2011 earnings, at a 25% discount to its closest peers.

Trina Solar is a China-based manufacturer of solar power products.

Net revenue grew over 100% year on year to $510 million during the September quarter. Following a cutback in silicon costs and non-silicon manufacturing expenses, gross margins stood at 31%, expanding 300 basis points from the same period last year.

For the September quarter, net income more than doubled from a year earlier to $83 million, boosted by lower interest costs and foreign currency exchange losses..

Solar module shipments stood at 291 megawatts during the September quarter, surpassing the company's guidance of 250MW-260MW and increasing 130% year on year. Trina reported reaching its 2010 annualized production target of around 950MW of PV cell and module capacity during August. In fact, the company has upgraded its 2010 year-end guidance to 1.1 gigawatts.

The stock is trading at 7.6 times its estimated 2011 earnings. Trina Solar compares favorably with its peers, given the stable margins. The stock has gained 19% during the last one month.

JA Solar Holdings is one the largest manufacturers of solar cells and solar products in China. The company has a diversified customer base of 53% international customers and 47% domestic customers.

For the third quarter ended Sept. 30, 2010, revenue increased 52% year over year to $541 million. Shipments were up 34% to 418MW, compared to an initial guidance of 375MW for the third quarter.

Gross profit for the third quarter came in higher at $121.8 million with a gross margin of 22.5%, exceeding the company's initial guidance of 20%. Overall operating expenses represented 4.1% of total revenue, below the earlier guidance of 6% of total revenue.

The company recently reached 1.9GW of solar cell capacity. Based on strong demand, management expects shipments to top 1.45GW in 2011, pegging the December quarter shipments at 450MW. The stock is trading at 5.5 times its estimated 2011 earnings.

ReneSola is a China-based manufacturer of solar wafers and solar module products, generating around 60% of revenue from the domestic market.

For the third quarter ended in September, foreign exchange gains drove net income to $60 million, up 67% from the corresponding quarter a year ago.

Gross profit for 2010's third quarter stood at $117 million with a gross margin of 32.5%, compared to the second-quarter gross profit of $77 million with a gross margin of 30.2%.

Net revenue was up 41%, riding on record solar wafer shipments of 325MW, up 26% from the second quarter. Management expects solar wafer and module shipments in the range of 1.13-1.15GW and 1.6-1.7GW for 2010 and 2011, respectively.

Consistently improving operating cash flows and a net cash position of $287 million at the end of third quarter reduced net debt-to-equity ratio to below 0.5. The stock is trading at 4.7 times its estimated 2011 earnings.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

More from Stocks

Why Millennials Are Ditching Stocks for ETFs

Why Millennials Are Ditching Stocks for ETFs

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech