China: Aluminum Gains

04/16/2004 12:00 am EST

Focus:

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

"I'm still very optimistic because record earnings combined with low interest rates are a powerful 'one-two punch' for the stock market," says Louis Navellier, who uses modern portfolio theory to find potential top performers. Here's the latest stock added to his Top 5 Buy List.

"Frankly, in light of record corporate profits and extremely low bond yields, Wall Street's bearish mood is perplexing. Even more perplexing is that some leading strategists on Wall Street are also bearish for 2004. I strongly disagree and remain very bullish. Due to the somber mood on Wall Street that's damping investor optimism, I still believe that defensive stocks with strong fundamentals, such as those on my Buy List in my Blue Chip Growth Letter, will serve as an oasis that will provide you with strong and steady returns. Due to profit-margin expansion, I expect that the average stock on the Buy List will post over 60% earnings growth. I encourage you to ignore the pessimists because our stocks should continue to thrive in this uncertain environment.

"Aluminum Corporation of China (ACH NYSE) is debuting on my Top 5 list this month, as a buy for aggressive investors. Better known as Chalco, the company is projected to have incredible sales and earnings growth this year largely due to the manufacturing boom in China. Since steel prices have risen over 60% on surging demand in China, aluminum is now in short supply and is being used for a variety of applications. Chalco makes both alumina and aluminum. Specifically, the company is the only producer of alumina in China, which is refined from bauxite and a key material in producing aluminum. The company produces about 5.4 million tons of alumina products annually (including alumina, alumina hydrate, and alumina chemicals), which makes it the second-largest producer of alumina in the world and a major exporter of alumina for other aluminum producers.

"Historically, Chalco has produced around 750,000 tons of primary aluminum per year. Its aluminum production is expected to soar due to the building and manufacturing boom in China. The company is still a state-owned enterprise, and the Chinese government owns approximately 44% of the outstanding stock. The stock is trading at only 8.25 times forecasted earnings, which makes it one of the most reasonably priced Chinese stocks. For comparison, CNOOC, the Chinese oil firm, trades at 14.5 times forecasted earnings and Huaneng Power trades at trades at 17.8 times forecasted earnings. We recommend purchase below $92."

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