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3 Chinese Energy Companies With Good Growth Potential

In light of declining oil prices, three Chinese energy companies with good growth potential according to the Peter Lynch Growth Screen are Oriental Energy Co. Ltd. (SZSE:002221), Guanghui Energy Co. Ltd. (SHSE:600256) and HY Energy Group Co. Ltd. (SHSE:600387).


Oil prices decline as investors validate U.S. - China trade agreement

On Monday, Brent crude prices declined 2.1% to $59.25 a barrel, while West Texas Intermediate crude prices declined 2.2% to $53.50 a barrel as investors ponder the validity of the trade agreement that the U.S. and China negotiated last Friday.

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Reuters added, Andy Lipow, president of Lipow Oil Association in Houston, said the markets were reacting to a "less-than-robust trade agreement with China" in the face of "declining demand growth forecasts for the oil markets" from past forecasts.

As oil prices decline, investors can seek growth potential in companies trading below their Peter Lynch earnings line: The author of "One Up on Wall Street" said one way to determine if a stock is undervalued is to compare the company's share price to the stock's earnings line, which represents the price assuming a price-earnings multiple of 15. Figure 1 illustrates a sample Peter Lynch Chart for Exxon Mobil Inc. (NYSE:XOM).

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Figure 1

Other key criteria for the Peter Lynch Growth screen, one of our predefined screens within the All-in-One Screener, include a business predictability rank of at least two stars and a 10-year revenue growth rate of at least 6%.

Oriental Energy

Nanjing-based Oriental Energy imports, produces, processes and distributes liquefied petroleum gas and steel products. GuruFocus ranks the company's profitability 8 out of 10 on several positive investing signs, which include a five-star business predictability rank, a Joel Greenblatt (Trades, Portfolio) return on capital that outperforms 81.52% of global competitors and a three-year revenue growth rate that outperforms 84.34% of global energy exploration and production companies. Additionally, operating margins are increasing approximately 10.30% per year over the past five years despite underperforming 54.17% of global peers.

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Guanghui Energy

Xinjiang-based Guanghui Energy engages in the transport and sale of liquefied natural gas, as well as the sale of real estate and wholesale of commodities. GuruFocus ranks the company's profitability 9 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 7, a four-star business predictability rank and operating margins that have increased approximately 2.90% per year over the past five years and are outperforming 89.71% of global competitors.

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HY Energy Group

Zhejiang-based HY Energy Group engages in the development of transportation, water conservancy, electricity and liquefied natural gas. GuruFocus ranks the company's financial strength and profitability 7 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 7, a solid Altman Z-score of 6.62 and debt ratios that are outperforming over 70% of global competitors. Additionally, the company's business predictability ranks three stars out of five.

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Disclosure: No positions.

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This article first appeared on GuruFocus.