4 Profitable Large Cap Asian Stocks with Attractive Valuations

James Dennin, Kapitall: Asian stocks have hit a 3-week low. What could be causing the dip, and is now a time to buy?

Benchmarks that track Asia's equity markets fell to their lowest point in three weeks today, amid speculation about China's service industry and a rising yen – which weakened Japanese stocks. 

Read more on Asia from Kapitall: Will These 3 Suppliers Benefit from the Apple Deal with China Mobile?

The picture gets a lot more dire when you look at China alone. There stocks are close to a five-month low as the Shanghai Composite Index closed at its lowest point since April 2013.

Analysts are attributing this to anxieties over China's slowing growth (which may have fallen as low as 7% for the year) and higher commodity prices, particularly coal. But the falling stock prices are still a concern, especially since China recently lifted its freeze on new Initial Public Offerings (IPOs) for Chinese firms.

There are more reasons why the region is of particular interest to Americans, and investors as a whole. 2014 also marks the one year anniversary of Japanese Prime Minister Shinzo Abe's economic program, informally dubbed "Abenomics." Conclusions about the success of Abenomics vary from bearish to  exuberant

Like the US, Japan's economic recovery program involves lots of quantitative easing – or asset purchases by a central bank to keep interest rates low and currencies cheap. Advocates for the program point to a record-breaking run on the Nikkei, lower unemployment, and greater exports as signs that it is working. On the flip-side there are concerns about asset inflation, and that the market could become addicted to easy money. 

Investing ideas

We decided to build a screen for investors who might want to make plays in the Asian recovery. To create the list we looked at valuation and operating margins, to try and find stocks that might be undervalued relative to their profitability. 

Because we didn't want any stocks that look too risky - paramount when looking at China's volatile markets - we set a fairly high limit for market capitalization at $10 billion.

Then we narrowed our search to stocks with low valuations, demonstrated by a price to equity ratio (P/E) below 15. Finally we looked at operating margins – which is how much cash a company has left over after deducting expenses, debt, and taxes. We only looked at companies with very high operating margins, of at least 25%. 

There were four Asia-based stocks that trade on US exchanges left in our screen. 

Click on the interactive chart below to view analyst ratings over time. 

Do you see investment opportunities in Asia? Use the list below to begin your own analysis. 

1. CNOOC Ltd. ( CEO): Engages in the exploration, development, production, and sale of crude oil, natural gas, and other petroleum products. Market cap at $79.33B, most recent closing price at $178.50.

P/E: 7.31

Operating Margin: 32.90%
 

 

2. NetEase.com, Inc. ( NTES): Engages in the development of applications, services, and other technologies for the Internet in China. Market cap at $10.12B, most recent closing price at $78.21.

P/E: 14.65

Operating Margin: 47.60%
 

 

3. Sumitomo Mitsui Financial Group Inc. ( SMFG): Provides various banking and financial products and services in Asia and the Oceania, the Americas, Europe, the Middle East, and Africa. Market cap at $70.33B, most recent closing price at $10.39.

P/E Ratio: 9.19

Operating Margins: 62.9%
 

 

4. Taiwan Semiconductor Manufacturing Co. Ltd. ( TSM): Engages in the computer-aided designing, manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices; and manufacturing masks. Market cap at $88B, most recent closing price at $16.99.

P/E: 14.49

Operating Margin: 35.8%

 

 

( List compiled by James Dennin, a Kapitall Writer. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

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