China will soon become the largest economy in the world, and that has investors eager to leap feet first into Chinese stocks.
And if you are looking for the best Chinese stocks to buy in 2019, our latest pick is dominating the automated manufacturing sector.
According to the International Federation of Robots, China set a single-year record in 2016 for the most installations of industrial robots, at 87,000. That number went up another 58% the following year, compared to growth in global demand of 31%.
China is blazing a trail as the country with the highest growth rate for one of the fastest-growing global tech industries.
When you combine this with the massive size of China's economy, it's obvious that investing in automation in the Chinese market will be lucrative in the coming years.
Our pick for the top Chinese stock to buy in 2019 is one of the leaders of China’s industrial automation sector for a quarter-century. The company also has a large stake in the booming rail transportation industry – both urban subways and high-speed rail.
This presents a massive opportunity for profits at a time when a growing number of Chinese cities are exploding in size and need larger public transportation systems.
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This becomes an even bigger profit play when you consider the country's "One Belt, One Road" program, which is a multitrillion-dollar initiative involving the expansion of rail access to connect China to Europe, Asia, and Africa.
Tariffs are generally negative, but the ones that have impacted Chinese stocks in 2018 have made this company's shares available at about half their fair value, meaning 100% returns in a short period aren't out of the question.
Double Your Money with One of the Best Chinese Stocks to Buy in 2019
HollySys Automation Technologies Ltd. (NASDAQ: HOLI) has been in business since 1933. It operates in 60 Chinese cities with offices and subsidiaries across the Middle East and Southeast Asia and has over 3,300 employees.
The company is so committed to innovation that 650 of its staff work in its research and development division, which is where roughly 7% of revenue is dedicated annually.
This is one of the reasons that HollySys has been able to remain a leader in its industry year after year, with over 30,000 projects completed for more than 10,000 clients.
The largest portion of its revenue is generated by industrial automation. This encompasses both the software and hardware necessary to automate industrial processes ranging from medical safety equipment to petrochemicals to city sewage and transportation systems.
HollySys's automation systems particularly stand out in the nuclear energy sector.
Working on nuclear reactors is dangerous for humans, which is why they are the perfect candidate for automation.
HollySys already controls about 14% of the Chinese nuclear market. And that market is one of the largest in the world. According to the World Nuclear Association, China has 28 reactors in 2017, and that figure is expected to jump to 56 by 2020.
Plus, HollySys has a distinct advantage because it is a Chinese company, and most of the competition in automation comes from companies outside of Asia.
But HollySys isn’t just a one-trick pony.
Greater than a third of the company's revenue comes from rail transportation services. The rail automation market in China is massive, and HollySys is one of just three companies that can provide automation technology for high-speed trains in China.
The automation systems provided by HOLI allow operators to control the trains from a central location, giving controllers the ability to save lives if something goes wrong remotely.
By 2045, the National Development and Reform Commission reports that high-speed rail across China will expand another 136% to 45,000 kilometers of rail. Urban rail, the subway signaling system offered by the company, is predicted to expand 183% by 2020 in Guangzhou alone. Other cities with massive expansion plans include Beijing and Shenzen.
Since all three clients are current HollySys clients and automation is set to expand, this is an excellent stock to buy now.
Why Now Is the Perfect Time to Buy HOLI
The best news for HollySys is that it’s mostly immune from the trade war since most of its business is within Asia.
The company's earnings per share in fiscal 2018 were up 53.4%, and this was after paying out a 0.9% dividend yield equal to over three times the average in this industry.
Its net operating cash flow has soared 174% in just the last four years, and analysts are still bullish on this stock.
In fact, every analyst tracked by FactSet has rated the stock either a "Buy" or "Overweight." Deutsche Bank predicts the stock will rise 50% over the next 12 months.
But it could go much higher.
The company's forward price/earnings ratio is roughly 47% of the average in its industry. It's price/earnings-to-growth, price-to-cash flow, and price-to-book ratios also come in at 50% or under of the industry average.
This suggests that gains of 100% or higher are possible.
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