...a Chinese Duo
01/27/2006 12:00 am EST
I am very glad to take this opportunity to welcome Jim Trippon to our coverage at the Money Show Digest. Here, the editor of China Stock Digest offers his two favorite selections for 2006—a conservative play on energy and a speculative play on technology.
"When it comes to oil and gas, China is taking its place as the Texas of the 21st century. Bigger is better, and China Petroleum & Chemical (SNP NYSE) fits the bill impressively. Best known by its abbreviated name, Sinopec, the stock is a conservative long-term buy and hold. Sinopec is China’s second-largest producer of oil and natural gas. It has proven reserves of 3.3 billion barrels of oil and 2.9 trillion cu. ft. of gas, and it owns more than 29,400 gas stations.
"Sinopec stands out as a world-class player. In November 2005, it won best corporate governance and most-respected award, and ranked number one among Chinese listed companies. The ranking is made by World Executive Weekly, World Finance Lab and Wall Street Wire. Its growth is breathtaking. Sales grew by 46% in 2004 and profits rose 66%. Total sales were almost $75 billion. Despite its high sales volume, its market cap remains in a conservative range below $50 billion. The p/e ratio varies between 7.3 and 10.3. We appreciate such reasonable values in a company that continues to explore and increase its reserves annually.
"Our speculative pick, Lenovo Group Ltd. (LNVGY Other OTC), is based in Hong Kong. It was one of the great Chinese-American business stories of last year, and it promises the same for the year ahead. It makes and sells desktop and notebook computers, mobile handsets, servers and peripherals. Lenovo sent shock waves through the PC industry when it acquired IBM’s personal computing division. The company has an additional product line, which includes mobile handsets, servers, peripherals, and digital entertainment products for the Chinese market.
"In November, Lenovo announced second-quarter financial results for the 2005-2006 fiscal year had risen 404% with revenues of $3.67 billion. EBITDA rose 270% to $122 million, and profit attributable to shareholders was up 22%. We anticipate Lenovo’s future lies in its ability to serve North American markets with the advantages of Chinese labor rates and IBM’s mature sales and marketing channels. Lenovo is a speculative buy."