China stocks have been one of the best places to profit for traders and longer term investors alike over the past several years and that continues today.  Granted, the risk increases with each passing day as the market continues to push higher off the March lows, but the longer term opportunities are here to stay.  The longer term investor may just want to practice a little patience before diving in after such a torrid run 🙂

I like to focus on niches of the China market and certainly my focus in the coming years will be on companies in the green energy space, which would include everything from solar, to wind, to electric cars to water conservation and treatment.  China is leading the way in alternative energy technology and will continue to pour billions into it to ensure they remain on top.  Back in June, I focused on the China water industry with a look at Duoyuan Global Water (DGW) ahead of its IPO.   It’s just one of a few China water plays that have been on fire in recent months, with gains of 100 – 300%.  For news, analysis and tracking of all the China alternative energy play, you might like to have a look at a new site I launched last year called Green Stocks Central.

Today, I shift gears a bit and focus on the China auto industry which has seen tremendous growth over the past year. 

The headlines speak for themselves…

China Keeps Small-Car Sales Tax Low To Spur Growth (12.11.09, Inside Line)
Chinese Passenger Car Sales Rise 98% In November (12.9.09, WSJ)
BMW, Volkswagen’s Audi Sales Rise as Chinese Car Market Doubles (12.8.09, Bloomberg)
Chinese Auto Industry Continues To Grow (11.24.09, BBC)

It’s safe to say that while the auto market here in the US remains dismal (if you throw out the temporary spike from Cash For Clunkers), demand for autos in China remains red hot due to a robust economy, government stimulus and a growing middle class.  In fact, this year China becomes the largest car market in the world, outpacing the US by a few million vehicles sold.  The 45% growth in 2009 China auto sales probably isn’t sustainable, but expect solid growth of 10 – 15% in 2010 as the rural to urban shift in China continues and government incentive remains.

So to how to profit from this growth?  While the big global auto manufacturers are profiting in China, it’s not going to make enough of an impact to send the stocks soaring.  Whether I’m looking to invest in smaller niches like water scarcity, the smart grid or China auto growth, I want the pure plays that are off the radar of Wall St. and the general investing public.  Preferably, I also want to see profitability and decent growth, not to mention a bullish stock chart.  China Auto Logistics  (CALI) meets all the requirements. 

China Auto Logistics (CALI) is one of China’s top sellers of luxury imported cars as well as one of the country’s leading developers of websites for buyers and sellers of imported and domestic automobiles. It is also China’s leading “one stop” provider of logistical services and financing to imported car dealers nationwide. The Company has made the strategic decision to de-emphasize imported auto unit sales in favor of expanding its new, highly profitable domestic auto websites which are accessible through its national website, www.at160.com, launched in May 2009. Its subscription and advertising based www.at188.com is the number one site for imported car dealers and consumers. Already contributing significantly to profits, the Company believes further expansion of its websites, including the addition of new web-based auto-related services, will drive future growth.

You might be asking why I’m not highlighting China Automotive Systems (CAAS), China Yuchai (CYD) or Kandi Technologies (KNDI).  Those are great plays on the China auto industry as well, but all three are too extended at this time.  I chose CALI because it’s a bit more off the radar and hasn’t yet seen a big run in its stock.   On the fundamentals side, this isn’t a company that is exhibiting extraordinary growth and considering the growth in the China auto market this year, the profit growth has been disappointing.  However, estimates do call for a nearly 50% rise in profits in 2010 and the company announced last week that its auto site www.at160.com (couldn’t they come up with a better name?) is now one of the top 100 sites in China and the 3rd most popular auto related website.  Considering the company is increasingly focused on its web business, this is a positive development.

CEO Tong Shiping commented, “”The growth in popularity of the Company’s websites also is being reflected in the Company’s revenues from website advertising and subscriptions. At the end of November, the number of subscribers or advertisers on the Company’s domestic auto sites exceeded 1,000.” He added, “I am particularly pleased that the Beijing site alone, which has been in existence for only four months, has developed 33 4S shops as paid subscribers leaving substantial opportunity to add many more of the 470 4S shops in the city.”

Here’s the CALI investor relations guy speaking to Fox Business about the China auto market

I don’t currently own shares of China Auto Logistics (CALI), but am looking for an entry signal.  That for me would occur on a breakout move above the 50 day moving average which is an area it has had trouble breaking above in the past month.  In the chart below, you see that the stock first offered an entry point when it broke out of consolidation in mid September above 4.25 and ran up a quick 50% in just a few days.  Since then, it has been digesting those gains in a very bullish manner, finding support along the 200 day moving average and looking poised to run again.  I’m just looking for price and volume to spike above that 50 day moving average in blue above about 4.75.  Check out MarketClub for additional chart analysis of CALI

Stay tuned for another off the radar China auto stock.. I’ll highlight the next one soon.