Guangshen Railways will rebound with Chinese economy

Railways are still the most economical form of transportation for moving goods on land, particularly in emerging market nations like China. 

Guangshen Railway has appeal for all emerging market investors

The global economic slowdown combined with concerns about fraud in Chinese stocks (FXIquote) has made a railroad company like Guangshen Railways (GSHquote) very appealing to emerging market income, growth and value investors.

Fraud may be a concern with many Chinese companies, but it is tough to fake a railroad. A railroad company has valuable assets and is hard to replicate, giving them an economic moat that protects them in tough times.

Railroad company Guangshen also has very attractive valuations. The price-to-book ratio is just 0.58, which means the stock is selling at more than 40% below the value of its assets.

The price-to-sales ratio of 1 tells the same story. This is very low for a railroad; America’s famed Union Pacific Corporation (UNP, quote) has a price-to-sales ratio of 2.65. 

While its valuations are low, the dividend for Guangshen Railways is high at 4.84%. This pays emerging market investors to wait for it to recover, which it will as the Chinese economy rebounds. There is little debt, the profit margin is in double digits and earnings-per-share have risen by 21.40% this year.

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