Crusading for Catalysts, part two — Paul Tracy

By Travis Johnson, Stock Gumshoe, January 6, 2009

Yesterday I shared a look at one stock Paul Tracy is teasing us with as a stock with great catalysts that should boost the stock price — today, let’s take a look at the second one he focused on in that ad.

Today, he’s talking about a Chinese Power Generator which, like the shipper we looked at yesterday, has a “five star” catalyst rating in his proprietary system.

I think I’m going to have to start saying that I have a “system”, too — it makes one seem so much more important, don’t you think? So far, my system has been to choose stocks that perform badly in a bear market, but I think I’m going to need a catchier name than that. Maybe I’ll call it the anti-contrarian system … I’ll keep you posted.

But anyway, Tracy has a Chinese power stock for us. Why is it so fabulous, you ask?

Here, in their words, is the gist:

“This major power producer runs the most efficient power plants in China, using far less coal to produce the same amount of power. This is a key profit catalyst in an era of rising coal prices.

“What’s more, its biggest shareholder is the country’s largest builder of utility plants. This relationship gives our pick a right of first refusal to buy all new power plants, a huge competitive advantage that is difficult to replicate.

“If you like a bargain, you’ll love the fact that you can buy shares for less than half of what you would have had to pay less than a year ago. The stock has dropped along with the sell-off that has battered the Chinese market since last November. But this solid and profitable utility is nothing like the speculative froth that made up so much of the Chinese stock market bubble. It gives you a conservative play on Chinese growth at an attractive price while paying you a solid 9.1% dividend.”

Sounds pretty good, no? Of course, if it didn’t sound good it wouldn’t be much of an ad, but still.

Paul believes that there are some solid catalysts for this stock, too, though to my ear most of them sound to some degree like long term trends that certainly haven’t helped the shares so far — I tend to picture catalysts as relatively near-term events, but they seem to use a broader definition of the term.

Here are the catalysts Tracy sees for this company:

Chinese electricity use is growing at double digit rates as the middle class grows.

They’re acquiring new plants and adding capacity.

Good connections: “the firm’s chairman is the son of China’s former prime minister. This counts for a lot in a country dominated by a communist government that still exercises huge control over business.” Can’t argue with that, key government connections are critically important for almost every company in China.

It’s plants are the most efficient, using less coal in an era of higher coal prices.

And the one that really sounds like I would call it a potential catalyst:

“A river of pent-up profits to be released soon. Power is heavily regulated in China, and the government has temporarily frozen rates. This is an enormous future catalyst because it will trigger a huge jump in profits. This one could get back to its old high in a hurry once rates are unlocked, which would mean a +114% gain from here.”

So … perhaps a bit enticing? Shall we throw this lot into the Thinkolator? Well, we’ve come this far.

Just a moment, please.

Ah, yes — this is Huaneng Power (IPO’d with shares on the NYSE at HNP about 15 years ago, now also traded in Hong Kong and Shanghai)

Huaneng Power has crossed these pages before — it was a pick of the Motley Fool at one point as a play on their efforts to build “pebble bed” nuclear reactors, though this pick by Tracy appears to be focused more on their conventional coal-fired power generation, which is a much larger part of the business (so far, at least).

Li Xiaopeng, who is the government connection, is indeed the son of Li Peng, former Prime Minister — and according to Forbes, he is still the Chairman of the Board at HNP. He has also been active in management of the parent company, Huaneng International Power Development Corporation.

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