By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 5/19/11
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My stock recommendation today is a Chinese company that presents an interesting mix of attractive qualities. It's
China Unicom (CHU), a Hong Kong-based Chinese telecom company that has a total of 323 million subscribers, including 146 million wireline accounts and 177 million mobile subscribers, of which a little over 20 million are 3G accounts.
With sales of over $27 billion a year, China Unicom is a sizable business.
But the big opportunity here is reflected in the company's revenue structure, which was skewed 54% to fixed-line services in 2009, and 46% to mobile.
China Unicom's business mix is a result of a reshuffling of wireline and mobile responsibilities in 2008. China Unicom, which had been primarily a fixed-line service provider, was delegated a significant chunk of wireless business. Efforts to build out wireless infrastructure (cell towers, submarine cables, etc.) have kept a lid on earnings, with five declines in the last six quarters.
But as these infrastructure outlays slow and higher-margin 3G service becomes a larger part of the mix, investors are anticipating a sizable improvement in earnings growth.
Since the beginning of December 2010, CHU has soared from 12 to 20, with a nice intermediate base centering on 17 in February and March. The stock broke out to new multi-year highs in April and looks to be putting in a new base around 20. CHU isn't cheap, but it pays a small dividend and is the best available way to play the mobile revolution in China. It looks buyable on any dip below its 25-day moving average.
Editor's Note: Paul Goodwin is the editor of Cabot China & Emerging Markets Report, which was the #1 rated newsletter for five-year performance in 2009 and 2010, according to Hulbert Financial Digest. During that time, Paul nabbed his subscribers a 174% total return, while the Wilshire 5000 gained only 15.4%. And there's more to come. Click here to discover why Paul thinks this is THE year for his favorite Chinese stocks.
Paul Goodwin
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report
A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of
Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.