There is a heated debate going on about China’s ghost towns, the risk implications of which are substantial for investors.
Resource and infrastructure-building companies that rely on construction in China will be hurt if unoccupied cities stall urbanization. But perhaps it’s not as bad as it seems: Yale professor Stephen Roach thinks that China is okay. He cites urbanization surpassing over 50% for the first time in 2011, successes in urbanizing empty cities in the past, and China’s central planning to explain why there are ghost towns in China. He concludes that these ghost towns are “an essential ingredient of the “next China,”” because it “provides China with both cyclical and structural options.”
On the other side of the debate is Vitaliy Katsenelson, a perma-bear of China, who is skeptical about China’s true debt-to-GDP ratio. The size of the asset-bubble in China depends on the unknown amount of debt in the system. Katsenelson says that “the more debt infesting the system, the further and steeper asset price declines will be and the longer and more painful recovery will be.”
Business Section: Investing Ideas
Investors exposed to resources, precious metals, construction, and infrastructure companies need to monitor China’s slowing growth. A regular monitoring the price of copper, coal, and steel will also help manage related risk exposure to these sectors.
Below are some company favorites that warrant your attention.
Attractive companies in the resource sector that are underperforming due to a slowdown in China and Europe are:
1. Cliffs Natural Resources Inc. (CLF, Earnings, Analysts, Financials): Produces iron ore pellets, lump and fines iron ore, and metallurgical coal products. Market cap at $5.25B, most recent closing price at $36.84. The company is committed to its dividend, which pays 6.79%. Shares are being punished due to its exposure to China’s demand for copper.
2. Freeport-McMoRan Copper & Gold Inc. (FCX, Earnings, Analysts, Financials): Engages in the exploration, mining, and production of mineral resources. Market cap at $33.77B, most recent closing price at $35.58.
3. Potash Corp. of Saskatchewan, Inc (POT, Earnings, Analysts, Financials): Produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. Market cap at $35.14B, most recent closing price at $40.90.
4. Joy Global, Inc. (JOY, Earnings, Analysts, Financials): A manufacturer and servicer of high productivity mining equipment for the extraction of coal and other minerals and ores. Market cap at $5.76B, most recent closing price at $54.43.
In the energy sector:
7. Walter Energy, Inc. (WLT, Earnings, Analysts, Financials): Produces and exports metallurgical coal for the steel industry primarily in the United States. Market cap at $2.11B, most recent closing price at $33.69.
More favorable plays in the energy sector are:
8. Talisman Energy Inc. (TLM, Earnings, Analysts, Financials): Engages in the exploration, development, production, transportation, and marketing of crude oil, natural gas, and natural gas liquids. Market cap at $14.54B, most recent closing price at $14.09.
9. BP plc (BP, Earnings, Analysts, Financials): Provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. Market cap at $133.16B, most recent closing price at $41.97.
To view more related companies, open the “Company Snapshot,” click “Analyze” and then select “Related Finder.”
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Cliffs Natural Resources Inc. (CLF, Chart, Download SEC Filings)
- Freeport-McMoRan Copper & Gold Inc. (FCX, Chart, Download SEC Filings)
- Potash Corp. of Saskatchewan, Inc (POT, Chart, Download SEC Filings)
- Joy Global, Inc. (JOY, Chart, Download SEC Filings)
- Vale S.A. (VALE, Chart, Download SEC Filings)
- Peabody Energy Corp. (BTU, Chart, Download SEC Filings)
- Walter Energy, Inc. (WLT, Chart, Download SEC Filings)
- Talisman Energy Inc. (TLM, Chart, Download SEC Filings)
- BP plc (BP, Chart, Download SEC Filings)
- Transocean Ltd. (RIG, Chart, Download SEC Filings)
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