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Our China Coal Play Is Heating Up
The ADR Alert
Tuesday, September 28, 2004
By Alexander Green, Investment Director
Email – #31
** Our China Coal Play Is Heating Up
Our international stocks are holding up well despite the downturn in the U.S. market.
However, one stock has been particularly strong recently, Yanzhou Coal (NYSE: YZC). Our shares have rallied 21% over the last six weeks. And there’s good reason to believe they have considerably further to run.
Based in Zoucheng, Yanzhou is China’s biggest listed coal producer. This $3.6 billion company has six mines with over 2 billion tons of proven and probable reserves.
Most investors are ignoring coal right now. (Two other hydrocarbons – oil and natural gas – are stealing the spotlight.) But that could be a mistake.
Rising oil and gas prices are making coal a more attractive alternative. (Solar, wind and nuclear are making little headway.) And according to this week’s Financial Times, “the U.S. government predicts that coal’s contribution to global energy production will double to 50% by 2015 as developing countries, particularly China and India, also seek a supply of low-cost energy more reliable than oil and gas.”
Until recently, China was the world’s second-largest coal exporter, behind only Australia. But China is now the world’s #1 coal consumer too. With heavy demand at home from electricity generators and steel makers, Yanzhou is finding it easy to sell more of its coal domestically.
You need only look at the bottom line. In the first half, Yanzhou’s net income rose 61% on a 19% increase in sales.
Yet despite this torrid growth, Yanzhou still trades at bargain levels. The stock currently sells for 15 times trailing earnings – and less than 10 times prospective earnings.
However, there’s still another reason to believe that Yanzhou offers excellent short-term potential.
This morning’s Wall Street Journal reports that in less than two weeks Barclay’s PLC will launch the first exchange-traded China index fund, to be listed on the New York Stock Exchange.
Yanzhou is virtually certain to be among the holdings. And as tens of thousands of investors – and their money managers – begin to index their China investments, shares of Yanzhou should come under heavy accumulation.
Other exchange-traded funds concentrating on China are in registration now as well. So this phenomenon could continue for some time.
Bear in mind, China shares are always volatile. And Yanzhou is no exception. But with coal prices rising, earnings at the company on fire, the valuation quite cheap, and the stock likely to get a lot of institutional attention in the near-term, YZC remains a buy at current levels.
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or 410.223.2679 (e-mail: viptrader@oxfordclub.com), or contact Pillar One Advisor Greg Galloway at 800.438.3040 or 407.667.4729.
Current Portfolio:
Stock: Lan Airlines (NYSE: LFL)
Country: Chile
Current Price: $24.84
Comment: Buy. Sell stop is $19.50.
Stock: Tenaris (NYSE: TS)
Country: Luxembourg
Current Price: $43.70
Comment: Buy. Sell stop is $33.
Stock: Tel. De Sao Paulo (NYSE: TSP)
Country: Brazil
Current Price: $17.22
Comment: Buy. Sell stop is $15.
Stock: Novo Nordisk (NYSE: NVO)
Country: Denmark
Current Price: $53.69
Comment: Buy. Sell stop is $50.
Stock: Yanzhou Coal (NYSE: YZC)
Country: China
Current Price: $62.56
Comment: Buy. Sell stop is $48.
Stock: Banco Bilbao (NYSE: BBV)
Country: Argentina
Current Price: $13.62
Comment: Buy. Sell stop is $12.
Stock: Fuji Photo (Nasdaq: FUJIY)
Country: Japan
Current Price: $31.64
Comment: Buy. Sell stop is $27.
Stock: PetroKazakhstan (NYSE: PKZ)
Country: Canada
Current Price: $32.53
Comment: Buy. Sell stop is $24.
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