China's major energy companies are as successful as any in the world. All of them are solid companies worthy of holding in your portfolio. Unfortunately, in 1Q05, they are all, in my view, too pricey to buy.

In fact, the oil plays are about 15 percent over-bought today and the coal producer (Yanzhou Coal) is about 30 pct over-bought, as I see it.

The time to enter this sector was last summer " when I issued urgent "buy" alerts to my readers. You'd be a happy camper if you went long then.

For the three oil companies, their combined oil and gas production is approximately 1.543 million barrels of oil equivalent or BOE, daily. China is estimated to hold undiscovered reserves of some 80 billion BOE, so in theory, they could produce full out through the end of the century.

In the big picture, however, these companies, as large as they are, can supply maybe only 50 percent of China's daily energy needs going forward, say five years, because it takes capital and time to make things happen. That's how fast the country is growing.

The bottom line, then, is that every time there is a sharp market correction, it'll be time to add to your portfolio stock positions.

I suggest that you pick a couple of these stocks and study them closely. CNOOC and Petrochina would be my choices.

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CNOOC (NYSE: CEO) CNOOC stands for the China National Offshore Oil Company.

In addition to holding exclusive offshore rights, CNOOC has purchased oil reserves elsewhere including Indonesia and Australia. The company is also involved in onshore Liquid Natural Gas (LNG) production.

Total proved reserves of oil is about 2.1 billion barrels. Daily production is listed at 356,729 barrels per day (bpd), which puts it close to 25 percent of the total for China by my calculations, but that is suspect. (Remember, I'm not an oil analyst.)

At $57.22, the market cap of CEO is $23.5 billion, with plenty of room for growth, in my view.

PE is a reasonable 16.5 and the dividend yield is presently 1.8 pct. The company is diamond strong financially. With 32.5 percent operating margins, 23.2 pct return on equity, and a PEG ratio of 0.88, CEO is worthy of consideration in any portfolio.

If CEO were to break down below $50, I'd be interested in buying calls if all else seemed normal.

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Petrochina (NYSE: PTR) is the number 1 integrated oil company in Asia, the most profitable company in all of Asia, and by far the biggest company in China.

The company, which holds all rights to onshore northern China, is rock solid financially, although not as much as CNOOC. It holds 10 billion proven oil reserves and 41.1 trillion cu. ft. of natural gas reserves, and produces almost 1 million BOE per day (i.e., actually over 915,000 BOE).

In addition to domestic exploration and production, the company owns and operates over 17,000 gas stations, 23 refineries plus numerous petrochemical plants. It is presently the senior partner in a $5.5 billion west-to-east natural gas pipeline that will add to the 8,000 miles of pipelines it presently owns.

The numbers boggle.

At $61.76, the market cap of PTR is $108.6 billion. PE is a reasonable 11.0, and the dividend yield is presently a high 3.8 pct. The PEG ratio is a neat 0.94.

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China Petroleum & Chemicals (Sinopec) (NYSE: SNP) is the second integrated oil company in China, holding all onshore rights to southern China.

The company is financially solid, although not as much as the other three in this sector.

Proved reserves include 3.3 billion barrels of oil and 2.9 trillion cu. ft. of natural gas. The company also owns and operates 29,400 gas stations and has huge interests in petrochemical plants and refiners.

At a current price of $43.46, the PE is 10.0, the dividend yield is 1.1, and the market cap is $37.8 billion. The Return on Equity, at 15.2 pct, is not bad, but the lowest performance of the four stocks in this sector. And the net margin (EBITDA) is just 9.1, which is a small fraction of the other companies here.

The PEG ratio at 0.89, however, still puts this stock on the radar screens of GARP traders, just like the other three in this sector.

I like the stock, but last April did short it and then a few weeks later closed the short and turned around with a long position as written up in my Trader Wizard blog. It was one of my best calls of the year.

Petrochemicals and gasoline and other refined products, which are somewhat lower in profit margin, make up a much larger percentage of the total revenues of SNP than say PTR. Of course, CNOOC is not involved in any petrochemicals or refining, so that one is really a profitable company.

What this means is that with every economic scare in China, SNP is the energy sector company to get hammered of the four I listed. So SNP is the only one I would risk buying a put on at times.

Having said that, SNP is a wonderful company. Unlike PTR and CEO, it just doesn't make my Global 100 list (i.e., the best companies in the world).

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Yanzhou Coal Mining (NYSE: YZC) is the major coal company in China.

YZC is even stronger financially than any of the oil companies, but it is also the priciest (1Q05). Whereas the three oil companies are probably 15 percent over-priced, this one is over-bought by as much as 30 pct. I certainly would not chase the stock.

Trading at $78.00, YZC has a PE of 18.5, a dividend yield of 0.8, and a market cap of 4.44 billion.

I'd look to be a buyer only under $60 because the first economic scare in China, such as a possible shut down of the steel companies, and so forth, and this stock would be headed south. Still, it has a PEG ratio of just 0.69, a net margin (EBITDA) of 36.6 pct and a Return on Equity of 15.8 pct. These are very impressive numbers.

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So, of the top four China energy sector stocks, the ones I like are PTR, the biggest and financially/operationally strongest, and then CEO.

As Petrochina and CNOOC would be in my Global 100 best companies, I'll try to monitor these China stocks for you and report back in the next couple months.

I like to say that as equity markets ebb and flow, there will be trading opportunities.

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The charts used here are from Investertech, which is a service I use because it offers multiple charts to a page, and charts in multiple time frames. The info summaries come from Yahoo Finance, which deserves the "Very Best of the Web" accolade. Finally, the excellent financial data, and any quote monitors, I show come from ADVFN. Starting in March, I'm going to get involved in the ADVFN chat rooms because this service is starting to add online price data from all the major stock exchanges in the world, and I want to encourage that. As better services become available, I'll use them too. Please let me know your favorites.

BCara@BillCara.com