September 08, 2010 at 04:15 PM

BY Dennis Hobein - Contributor, Stock Traders Daily

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Double-Dip Unlikely, But Slow Growth In Store

Following a batch of better-than-expected economic data over the past couple of weeks, fears of a “double-dip” recession have eased. Specifically, last Friday’s labor data provided some glimmer of hope as it showed that the private sector added more jobs than anticipated, and as more unemployed people stepped into the job pool due to a more optimistic outlook. Going a bit further back, on September 1 the August ISM Manufacturing Index came in higher than expected at 56.3, up from July’s 55.5 figure. Furthermore, even the abysmal housing market showed some signs of life with July Pending Home sales increasing 5.2% month-over-month. Investors and traders certainly ran with the data, pushing the SPDR Dow Jones ETF (DIA) higher by 3% for the week ending September 3. However, from a higher-level view, the U.S. economy is still greatly damaged. Soft consumer spending – the key driver to true economic growth - is the primary reason why U.S. GPD is only projected to increase 2.6% this year and 1.4% next year. At some point, it figures that this tepid economic growth will find its way to corporations’ bottom lines and investors will be reminded that top line growth is paramount to steady profit growth. With that in mind, we thought it may be a good idea to dig around for some high growth stocks operating in emerging economies that have GDP growth rates registering in the double digits.

China Concerns Blowing Over

On Sept. 1, it was reported that China’s Manufacturing PMI rose to 51.9 compared to 49.4 in July. The following day, China auto sales data was released and showed that sales rocketed higher by 59% in August. Prior to this data, there had been a growing concern that China’s economy was starting to show some kinks in the armor. After all, its GDP drifted lower from 11.9% in the first quarter to 10.3% in the second quarter. Fears of a slowdown there reverberated around the global equity markets, but China-based stocks were particularly punished. For instance, the iShares FTSE/Xinhua Trust (FXI) shed as much as 15% between early April and late May before rebounding on these latest encouraging numbers. Many China-based stocks have surged higher over the past few weeks, including Baidu.com (BIDU), which is up 9% since August 30. China’s leading internet search company has been benefitting from a couple powerful catalysts. First, Chinese companies are pouring more and more money into online advertising to reach the rapidly growing population of internet users there. Secondly, with Google (GOOG) pulling out of China due to disagreements over censorship, there are essentially no threatening competitors to speak of. Analysts are very bullish on BIDU’s growth projections, forecasting EPS and revenue to expand by 54% and 55% in 2011. While the prospects look favorable for BIDU, one factor to keep in mind is its exorbitant trailing P/E of 88x. On a technical basis, all of our subscribers are privy to a BIDU trading report, which indicates whether BIDU shares have further room to run.

Another China-based stock that has been rocketing higher in recent weeks is JA Solar (JASO), up a staggering 46% since the beginning of July. This comes after a difficult 2008-2009 in which demand evaporated due to the global financial crisis, in addition to a solar module environment characterized by oversupply. But, as the global economies have improved and as supply has been consolidated, solar companies (and stocks) have benefitted – particularly those from high growth economies like China that are less reliant on tariffs from European governments. The vastly improved business climate was evident in JASO’s most recent quarterly report from August 10 in which sales soared 296% and profits went to $0.27/share from a loss of ($0.18) a year ago. The results have shot the stock through its $4.50-$7.00 trading range and may be poised for a further breakout. By accessing our trading report on JASO, our subscribers can develop an in-depth trading strategy for this stock that includes key entry and exit levels and important risk control measures that help limit downside exposure.

Diversify With Brazil

China tends to garner the most attention, but investors shouldn’t dismiss the largest economy in Latin America, and the world’s eighth largest economy. In fact, it was reported on September 7 that Brazil’s GPD continued its boom, growing 8.8% in the second quarter, above the 7.9% forecast. That news has helped boost Brazilian stocks as indicated by the 4% upswing in the iShares Brazil Index Fund (EWZ) since the end of August. With a renewed investor interest in basic materials stocks, primarily due to increased optimism regarding the health of the U.S. and Chinese economies, one stock that may present an interesting long opportunity is Vale (VALE) – Brazil’s largest metals and mining company. The stock is currently trading just above its 50-day moving average, which may act as a floor for the stock. Subscribers to Stock Traders Daily are provided with a full trading report on VALE which offers them a much more detailed look at the technicals. Each report offers a proprietary trading strategy tailored for that particular stock, allowing our subscribers to maximize their trading gains.

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