The Highest Yielding China Stocks

The Chinese economy is going to keep growing at a much faster rate than the U.S. economy or for that matter just about any world economy. But the risk is to have a 9% down day like we had in February in the Shanghai market or a major drop last week.

The cushion against volatility is sold cash yields. If a Chinese public company is paying a comfortable dividend, then a flight to quality will help buffer any volatility that the Chinese markets might experience, even as they hit higher highs over the long-term (and perhaps the short-term). At stockpickr.com (see the link to the right) we keep track of the highest yielding China stocks that the best investors have already been accumulating.

These are the companies that are demonstrating sustainable growth and earnings, and are rewarding shareholders. It's also interesting to go down the list and see which hedge funds and super investors have also been diversifying into these most stable China stocks.

If you look strictly at yield, there are several opportunities.

CNOOC

First on the list is CNOOC Ltd. (CEO), also known as China National Offshore Oil, which pays a yield of 3.6%. It has a P/E of 9.4 and a PEG of 0.32. Cash in the bank totals $4.6 billion. It's understandable to be worried that companies in communist China can be shut down at a moment's notice. But this is a company with $4.6 billion in the bank, trading at a tiny multiple of earnings and returning cash to shareholders. With such a low P/E, steady earnings growth, dividend growth, and a low PEG, I can easily see the stock doubling by year-end.

SAC Capital also owns CNOOC. The hedge fund, run by Stevie Cohen, has returned over 30% per year since it started in the early 90s. And that’s after taking up to a 50% performance fee. This means that gross returns before fees (which is all we care about since we're just piggybacking, not investing in the fund) often exceeds 60 percent.

Citadel Associates also owns it. This fund is run by Ken Griffin, who started it out of his Harvard dorm room when he was 19 with a $100,000 investment. Now Citadel has over $15 billion under management. A recent New York Times profile speculated if Citadel would be the next Goldman Sachs.

One of my favorite hedge funds, Renaissance Technologies, also owns CNOOC. Renaissance is very quant driven and only hires Ph.D.s but that formula has been very successful. Currently, Renaissance is are out raising a $100 billion hedge fund, which would be by far the largest ever. My theory is they are buying every stock that has a lot of cash in the bank and a low P/E ratio. CNOOC certainly qualifies.

PetroChina

A play on the non-stop growth in China's economy and its ever-growing need for oil is PetroChina (PTR), the largest petroleum company in the country. PetroChina is only trading at six times cash flows and offers a solid 3.1% yield. It counts among its investors Warren Buffett who has also been making several back-door bets on China. For instance, he likes Posco (PKX), the largest steel company in Korea. Posco is the first stop for China when they are looking for steel.

Buffett has also been loading up on railroads. As China demands more U.S. commodities, those commodities are grown in the Midwest, shipped to the West Coast via rail and then shipped to China. Buffett has been accumulating three railroads for his portfolio. It's interesting that although Buffett likes to make these “backdoor” bets on China (i.e., not invest directly in Chinese companies but the companies that supply them) he is comfortable making the bet on PetroChina, probably because he views the dividend yield as a safety factor.

Aluminum Corp. of China

Another safe, high yielding China stock is Aluminum China (ACH), which pays 2.5%. They also have very favorable fundamentals including an extremely low P/E of nine, a price earnings growth ratio of 0.62, and sells for about half of book value with a billion and a half dollars in cash.

Check out the portfolio on the right to find the rest of the highest yielding, stable, China stocks. You'll also see what other investors are making the same bets as well as the P/E ratios and dividend yields of each stock.

James Altucher is founder and CEO of Stockpickr.com, author of the book "Trade Like Warren Buffett" and partner at Formula Capital.

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