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Among the biggest losers of 2016, China’s stocks have currently fallen out of favor with most investors. This is evident from the low trading volumes on the Shanghai and Shenzhen exchanges witnessed recently, which have fallen more than 30% below their daily average for the year. A liquidity crunch and wariness about the financial markets have led to investors adopting a cautious stance.
There has been similar wariness about the state of the country’s economy over the past year. However, fresh data from China’s Beige Book’s fourth quarter survey shows that a modicum of stability has returned. China remains the world’s second largest economy and a favored investment destination which means that it is still a good idea to pick up select China stocks.
Economy Looks Stable, Companies Gain
China Beige Book’s fourth quarter survey indicates that the economy has attained a degree of stability. Further, there is evidence to show that this is likely to continue over the next year. Additionally, prospects for China’s companies improved over the Oct-Dec period with input costs falling and profit margins rising. As a result, industrial profits increased by 14.5% in November on a yearly basis, improving over October and September’s increases of 9.8% and 7.7%.
Additionally, companies experienced an increase in revenues, capital investment and greater hiring over the fourth quarter. This was an improvement over levels witnessed over the third quarter and also witnessed stable growth in new orders. However, inventory levels have hit their highest level ever, which is a concern.
Can Authorities Combat Outstanding Concerns?
At the same time the report also serves to highlight some lingering concerns. Firstly, companies are experiencing problems with their cash flows as customers are putting off paying their bills. This phenomenon has been witnessed across all sectors, including the growing retail industry. To add these worries, companies have indulged in a higher level of borrowing over the second half of the year than any period witnessed since mid- 2013.
At this point, it is crucial to remember that authorities have taken several steps to curb risks in the system. These actions range from controlling prices in the property market which is experiencing a slowdown to placing restrictions on margin traders and other key financial players.
However, the survey also noted a steep decline in the number of companies reporting poor quarterly results. While this could imply that more firms are going out of business, it could also indicate that government support for firms has been stepped up. This means that the state could possibly continue to intervene in markets in order to ensure China’s financial and economic success.
Our Choices
Despite some lingering concerns there is enough evidence to show that China’s economy is now sufficiently stable. This is borne out by the improvement in the country’s corporate sector over the fourth quarter.
Adding stocks from the country to your portfolios continues to be a prudent option. However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
YY Inc. (YY - Free Report) is an online social platform, which engages users in online group activities through voice, text and video.
YY Inc. has lost 34.8% year-to-date, underperforming the Zacks Internet - Content Market sector, which has gained 11.7% over the same period. However, it has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 24.9% for the current year.
The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 17.92, lower than the industry average of 11.89. Its earnings estimate for the current year has improved by 9.2% over the last 30 days. This provides a good opportunity to buy the stock which remains valued below its market potential at this point.
Angang Steel Company Limited is engaged in the production, processing, and sale of steel and related products.
Angang Steel Company has gained 48.9% year-to-date, underperforming the Zacks Steel - Producers Market sector, which has gained 76.2% over the same period. However, it has a VGM Score of A. It has a P/E (F1) of 17.41, which is lower than the industry average of 17.89. Its earnings estimate for the current year has improved by 10.3% over the last 30 days.
LightInTheBox Holding Co., Ltd. (LITB - Free Report) is an online retail company operating on a global scale.
LightInTheBox Holding has a Zacks Rank #2 (Buy) and a VGM Score of A. Its earnings estimate for the current year has improved by 71.4% over the last 30 days. The stock has returned 3% year-to-date, outperforming the Zacks Internet - Delivery Services Market sector, which has lost 8% over the same period.
China Automotive Systems, Inc. (CAAS - Free Report) manufactures power steering systems and other component parts for automobiles.
China Automotive Systems has a Zacks Rank #2 and a VGM Score of A. It has a P/E (F1) of 7.90, which is lower than the industry average of 13.86. The stock has returned 20.7% year-to-date, outperforming the Zacks Automotive - Original Equipment Market sector, which has returned 5.1% over the same period.
Semiconductor Manufacturing International Corporation (SMI - Free Report) is one of the leading semiconductor foundries in the world and the largest and most advanced foundry in Mainland China,
Semiconductor Manufacturing International has gained 38.8% year-to-date, underperforming the Zacks Electronics – Semiconductors Market sector, which has gained 53.9% over the same period. However, it has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 34.4% for the current year. It has a P/E (F1) of 16.12, which is lower than the industry average of 18.82. This provides a good opportunity to buy the stock.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>
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5 Top China Stocks to Buy for 2017
Among the biggest losers of 2016, China’s stocks have currently fallen out of favor with most investors. This is evident from the low trading volumes on the Shanghai and Shenzhen exchanges witnessed recently, which have fallen more than 30% below their daily average for the year. A liquidity crunch and wariness about the financial markets have led to investors adopting a cautious stance.
There has been similar wariness about the state of the country’s economy over the past year. However, fresh data from China’s Beige Book’s fourth quarter survey shows that a modicum of stability has returned. China remains the world’s second largest economy and a favored investment destination which means that it is still a good idea to pick up select China stocks.
Economy Looks Stable, Companies Gain
China Beige Book’s fourth quarter survey indicates that the economy has attained a degree of stability. Further, there is evidence to show that this is likely to continue over the next year. Additionally, prospects for China’s companies improved over the Oct-Dec period with input costs falling and profit margins rising. As a result, industrial profits increased by 14.5% in November on a yearly basis, improving over October and September’s increases of 9.8% and 7.7%.
Additionally, companies experienced an increase in revenues, capital investment and greater hiring over the fourth quarter. This was an improvement over levels witnessed over the third quarter and also witnessed stable growth in new orders. However, inventory levels have hit their highest level ever, which is a concern.
Can Authorities Combat Outstanding Concerns?
At the same time the report also serves to highlight some lingering concerns. Firstly, companies are experiencing problems with their cash flows as customers are putting off paying their bills. This phenomenon has been witnessed across all sectors, including the growing retail industry. To add these worries, companies have indulged in a higher level of borrowing over the second half of the year than any period witnessed since mid- 2013.
At this point, it is crucial to remember that authorities have taken several steps to curb risks in the system. These actions range from controlling prices in the property market which is experiencing a slowdown to placing restrictions on margin traders and other key financial players.
However, the survey also noted a steep decline in the number of companies reporting poor quarterly results. While this could imply that more firms are going out of business, it could also indicate that government support for firms has been stepped up. This means that the state could possibly continue to intervene in markets in order to ensure China’s financial and economic success.
Our Choices
Despite some lingering concerns there is enough evidence to show that China’s economy is now sufficiently stable. This is borne out by the improvement in the country’s corporate sector over the fourth quarter.
Adding stocks from the country to your portfolios continues to be a prudent option. However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
YY Inc. (YY - Free Report) is an online social platform, which engages users in online group activities through voice, text and video.
YY Inc. has lost 34.8% year-to-date, underperforming the Zacks Internet - Content Market sector, which has gained 11.7% over the same period. However, it has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 24.9% for the current year.
The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 17.92, lower than the industry average of 11.89. Its earnings estimate for the current year has improved by 9.2% over the last 30 days. This provides a good opportunity to buy the stock which remains valued below its market potential at this point.
Angang Steel Company Limited is engaged in the production, processing, and sale of steel and related products.
Angang Steel Company has gained 48.9% year-to-date, underperforming the Zacks Steel - Producers Market sector, which has gained 76.2% over the same period. However, it has a VGM Score of A. It has a P/E (F1) of 17.41, which is lower than the industry average of 17.89. Its earnings estimate for the current year has improved by 10.3% over the last 30 days.
This provides a good opportunity to buy the stock. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
LightInTheBox Holding Co., Ltd. (LITB - Free Report) is an online retail company operating on a global scale.
LightInTheBox Holding has a Zacks Rank #2 (Buy) and a VGM Score of A. Its earnings estimate for the current year has improved by 71.4% over the last 30 days. The stock has returned 3% year-to-date, outperforming the Zacks Internet - Delivery Services Market sector, which has lost 8% over the same period.
China Automotive Systems, Inc. (CAAS - Free Report) manufactures power steering systems and other component parts for automobiles.
China Automotive Systems has a Zacks Rank #2 and a VGM Score of A. It has a P/E (F1) of 7.90, which is lower than the industry average of 13.86. The stock has returned 20.7% year-to-date, outperforming the Zacks Automotive - Original Equipment Market sector, which has returned 5.1% over the same period.
Semiconductor Manufacturing International Corporation (SMI - Free Report) is one of the leading semiconductor foundries in the world and the largest and most advanced foundry in Mainland China,
Semiconductor Manufacturing International has gained 38.8% year-to-date, underperforming the Zacks Electronics – Semiconductors Market sector, which has gained 53.9% over the same period. However, it has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 34.4% for the current year. It has a P/E (F1) of 16.12, which is lower than the industry average of 18.82. This provides a good opportunity to buy the stock.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>