This week’s theme is the newly confident Chinese oil companies. These once-irrelevant Asian energy players burst on the global investment scene 2005 with state-owned CNOOC’s high-profile (if unsuccessful) $18.5 billion bid for Conoco. Master investor Warren Buffett was aware of these opportunities earlier than most, having sunk $300 million into Chinese oil giant Petro China back in 2002.
But we think we’ve gone Buffett one better by uncovering Beijing-based China Petroleum & Chemical Corporation, or "CPCC" (NYSE: SNP). This oil and chemical giant has proved reserves of approximately 3,267 million barrels of crude oil and 3,033 billion cubic feet of natural gas. It also has a huge retail presence, owning over 30,000 gas stations in China.
CPCC is also the most undervalued of Chinese oil stocks. It’s got the lowest P/E and lowest P/S among all its Chinese rivals. Its PEG ratio of .36 is particularly impressive. (Anything below "1" screams "buy".)
There are also signs that the Chinese stock market has awakened from a long slumber. After dropping over 8% last year, the China market has been one of the top performers so far in 2006. Chinese oil and natural resource stocks have been are particularly strong.
Whether or not investment bank Goldman Sachs’ prediction of $100 per barrel of oil this year proves to be accurate, CPCC is certain to outperform other international global oil giants like Royal Dutch Shell and British Petroleum.
So buy SNP at market today. Set a stop price of $47.50. If you want to play the options for potentially greater profits, buy the July $60 calls (SNPGL.X).
PORTFOLIO UPDATE
We were stopped out of our remaining one-half position in Elan on Wall Street’s selloff last week. You made 70% and 128% in Elan options, and over 50% on the half stock position you sold on Wednesday.
Despite Wall Street’s sharp drop on Friday, our position in NII Holdings (NIHD) hit record highs. Last week’s recommendation Gold Fields (GFI) is also in positive territory, as gold hit its record levels — and is up again today. Teva (TEVA) and America Movil (AMX) have also held up better than the market as a whole.
Korean bank Woori Financial (WF) was, however, caught in the downdraft of the Japanese market’s mini-contagion. Nevertheless, the fundamentals remain as strong as ever. Woori announced last week that it was planning to open 100 more branches in Korea and is on the verge of acquiring a major credit card business in South Korea.
