November 16, 2009 (Chinavestor) China stock investor - embrace yourself for another exciting market day. You're going to see three important earnings announcements on Monday: Sinovac (AMEX:SVA) before the open, Sina Corp. (NASDAQ:SINA) and WuXi Pharmatech (NYSE:WX) after the close.
Besides earnings, investors will have to watch out for momentum stocks such as China Automotive Systems (NASDAQ:CAAS), Ctrip.com (NASDAQ:CTRP), China Eastern Airline (NYSE:CEA), China Southern Airlines (NYSE:ZNH), Trina Solar (NYSE:TSL), and Canadian Solar (NASDAQ:CSIQ). Today's value stocks include China Petroleum & Chemical Corp. (NYSE:SNP), Aluminum Corp. of China (NYSE:ACH), China Telecom (NYSE:CHA), China Unicom (NYSE:CHU) and China Mobile (NYSE:CHL). Tongxin International (NASDAQ:TXIC) and China Digital TV Holding (NYSE:STV) are oversold after earnings. Let's see earnings first. Sinovac (AMEX:SVA) is a Beijing based vaccine maker that has just reported this morning before the bell. There has been tremendous activity around this stock since the H1N1 flu threat broke out. As expected, Sinovac (AMEX:SVA) reported strong revenue and earnings growth for the third quarter. But the real question is sustainability of earnings. If you look at the 5 year price chart of Sinovac (AMEX:SVA), the stock has been jumping 200%-600% on pandemic threats just to see it go back to the $4 range after the scare. If this is going to happen this time is hard to tell, but one thing is for sure: value investors like stocks that deliver CONSTANT earnings growth. For those who don't believe in this company for the long run, the expected jump right after the open will be a good time to take profits off the table.
Sina Corp. (NASDAQ:SINA) is a very important Chinese Internet play whose earnings will have effect on Sohu.com (NASDAQ:SOHU), NetEase.com (NASDAQ:NTES) among others. Sina Corp. (NASDAQ:SINA) has been very strong YTD by advancing 83.24% since January, but if earnings will be good, expect share price of Sina Corp. (NASDAQ:SINA) to keep going higher. As the chart below testifies Sina Corp. (NASDAQ:SINA) is not overbought, leaving room for additional upside.
WuXi PharmaTech (NYSE:WX) is going to report after the close today. Expectations run high for WuXi Pharma (NYSE:WX) evidenced by the 13.3% run lat week. As the following overbought chart testifies WuXi PharmaTech (NYSE:WX) is overbought, but better-then-expected earnings can keep the stock price going. On the other hand, should earnings not impress investors, WuXi PharmaTech (NYSE:WX) is in big trouble.
China Automotive Systems (NASDAQ:CAAS) is the only more overbought stock then WuXi Pharma (NYSE:WX). Strong revenue and excellent earnings growth has been supporting share price for China Automotive Systems (NASDAQ:CAAS), but as the following chart testifies, the stock is overbought. Considering that China Automotive Systems (NASDAQ:CAAS) is trading at a high 41.8 P/E ratio vs. 4.42 for Tongxin Int. (NASDAQ:TXIC), CAAS looks to be in danger. My suggestion is to look up the 5 year stock chart for CAAS to put current rally into perspective. Before you panic, expect a strong market day today - index futures are sharply higher - and don't expect China Automotive Systems (NASDAQ:CAAS) to tumble on Monday.
Ctrip.com (NASDAQ:CTRP) is another stock of interest. The company reported strong Q3 numbers and has rallied accordingly. But be careful, Ctrip.com (NASDAQ:CTRP) is getting overbought, limiting its upside potential. Again, a strong market day on Monday can keep Ctrip.com (NASDAQ:CTRP) go higher but keep in mind that technical indicators are starting to raise a red flag.
China Eastern Airline (NYSE:CEA) and China Southern Airlines (NYSE:ZNH) had an unusual strong showing last week. While they are far from overbought these NYSE listed large cap stock rarely get there before they turn around. Their strength is coming from strong passenger traffic in China, a sign that travel is back on track and thanks to the government cash infusion earlier this year, Chinese carriers are in good shape. Another positive development is lower kerosene prices vs. a year ago, boosting their financial statements. As we have just sent out an email alert to Chinavestor clients this morning, it may be time to take profits off the table when it comes to Chinese airliners. China Southern Airlines (NYSE:ZNH) has been on the "Conservative" portfolio since last November, a time when it was under $8. While there may be more upside for China Southern Airline (NYSE:ZNH) and China Eastern Airline (NYSE:CEA), my suggestion was to take profits off the table. There is nothing wrong with a 20% run this month or a 125% gain in the last 12 months.
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Most overbought China stock list
Canadian Solar (NASDAQ:CSIQ) and Trina Solar (NYSE:TSL) have been strong following better-then-expected earnings from Chinese solar makers. With industry leaders Trina Solar (NYSE:TSL) and Suntech Power (NYSE:STP) reporting third-quarter earnings later the week, expect additional volatility within the sector. Solarfun Power (NASDAQ:SOLF) is schedule to report on November 17.
Looking at the most oversold China stock universe, Tongxin Int. (NASDAQ:TXIC) is on the top of the list. The company reported strong Q3 revenue and earnings growth yet it failed to impress investors. China Automotive Systmes (NASDAQ:CAAS) reported 75% revenue growth vs. 18.8% for Tongxin Int. (NASDAQ:TXIC) but earnings growth really separates the two. CAAS reported 350% EPS growth vs. 834% for Tongxin Int. (NASDAQ:TXIC). But considering that TXIC is trading at 4.42 P/E vs. 41.83 P/E for CAAS, Tongxin (NASDAQ:TXIC) offers value for the smart investor.
Most oversold China stock list
Overbought A technical condition that occurs when prices are considered too high and susceptible to a decline. Overbought conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp advance from $15 to $30 in 2 weeks might lead a technician to believe that a security is overbought. Or, a security is sometimes considered overbought when the stock is trading out of its trading envelope and is approaching the theoretical high. It is important to keep in mind that overbought is not necessarily the same as being bearish. It merely infers that the stock has risen too far too fast and might be due for a pullback.
Oversold A technical condition that occurs when prices are considered too low and ripe for a rally. Oversold conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp decline from $30 to $15 in 2 weeks might lead a technician to believe that a security is oversold. Or, a security is sometimes considered oversold when the stock is trading below its trading envelope and is approaching theoretical lows. It is important to keep in mind that oversold is not necessarily the same as being bullish. It merely infers that the security has fallen too far too fast and may be due for a reaction rally.