Playing the China Trade

 | Nov 30, 2011 | 4:06 PM EST
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The China trade. How do you play it?

If this is the beginning of a loosening of Chinese interest rates, if we are to believe that the long-awaited interest-rate cut is here, then there are plenty of stocks to own.

Unfortunately, the stocks have quickly reflected that possibility. For example, the three most obvious China plays, the three stocks that have been most hurt by worries about China, Caterpillar (CAT), Cummins (CMI) and Joy Global (JOYG), have roared today. To come in on top of those moves is to believe that the Chinese are going to loosen rates again in a couple of days. There's probably a better moment coming.

Coal's interesting. It's been down huge, in part because the earnings have been down huge. I have been tempted to give up on these companies and just play it through the rails. While Peabody (BTU) is the best run, I would rather buy Union Pacific (UNP) at $102 or Norfolk Southern (NSC) at $75. They are up big from the lows, but they are huge beneficiaries.

Freeport-McMoRan (FCX) can still make sense. It's been horrible, but I think it has bottomed. I would prefer to see the iPath DJ-UBS Copper TR ETN (JJC) above $50 to pay $39 for FCX, but now I think the downside is limited because of the cutting.

Oil, oil and more oil. I can't stress the fact that China needs so much more oil than it has. You can buy any oil off Chinese consumption. I am sure you are tired of hearing which ones I like, but here goes: Schlumberger (SLB), Ensco (ESV), Apache (APA), EOG Resources (EOG), National Oilwell Varco (NOV), ConocoPhillips (COP) and Chevron (CVX).

Finally, Starwood (HOT). It has 100 new hotels coming in China. That's been the company's Achilles heel. Now it's a positive.

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