Back when the Internet phenomenon was exploding, it was popular to have ".com" in your company name, or to sport the letter "e" when e-commerce hit the big time. Thus were born viable business stories like Amazon.com (Nasdaq: AMZN ) and E*Trade (NYSE: ET ) , along with less successful ventures like eToys and Pets.com. Wireless technology? More than five dozen stocks trade with the word "wireless" in their name. Cable? Two bakers' dozens are listed.
China is apparently the new "dot-com." A simple check of Yahoo! Finance reveals more than 200 companies with the word "China" in their names. And while a few seem like viable entities, like China Mobile (NYSE: CHL ) and China Telecom (NYSE: CHA ) , the vast majority seem to be little more than penny-stock hucksters trying to cash in on the China craze. Of those 211 companies that Yahoo! lists as trading in the U.S. and Canada, two are listed on the American Stock Exchange, two are on the Nasdaq, and 17 trade on the New York Stock Exchange. The remainder are all penny stocks trading over-the-counter on the Pink Sheets.
Both of The Motley Fool's co-founders believe in the potential for a market economy in China, albeit not a capitalist one. David Gardner recommended Chinese Internet portal Sina (Nasdaq: SINA ) to readers of Motley Fool Stock Advisor two years ago, and wireless entertainment content provider TOM Online (Nasdaq: TOMO ) this past May. Brother Tom Gardner has recommended Chinese travel company Ctrip.com (Nasdaq: CTRP ) to Motley Fool Hidden Gems subscribers (adding in the "dot-com" buzz, to boot).
Although I'm not convinced that the time is right yet for investment in China -- I find the possibility of government rule-changes in the middle of the game an all-too-real risk -- plenty of other Fools disagree. Still, investors shouldn't rush in simply because a company touts itself as having some Chinese connection.
Consider Comet Technologies, a company that until recently had no operations. Through a reverse merger, it acquired a tiny "pharmaceutical" business that markets Chinese herbal remedies and changed its name to China Sky One Medical, "to better indicate our ties to China." Amazingly, this company's stock has traded sporadically on the Pink Sheets for more than a decade, even though it made no products, had no services to offer, and had no revenues. Now, with a "Chinese connection," it may attract even more investor attention, warranted or not.
Growing concerns with actual business models have made it difficult enough to navigate the uncharted territory of Chinese regulatory mandates. A ruling from China's Ministry of Information unilaterally decided to impose rules on how and when companies can impose monthly subscription fees, causing China Mobile to change its policies. The ruling is also expected to negatively affect both Sina and TOM Online over the short term. Google drew much-deserved derision for its move to play nice with the Chinese government by limiting free-speech content on its China-specific search engine.
Usually, you can tell which trend is the flavor of the month just by scanning the junk mail that arrives at your doorstep or lands in your email inbox. Investing should not mean jumping onto the latest fad. Don't let the newest dot-com become the latest dot-bomb that decimates your portfolio.
Decide whether investing in China is right for you with these related Foolish articles:
Sina, Amazon, and TOM Online are recommendations of
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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