These Stocks Beat Chinese Stocks

There's been plenty of emerging growth success stories out of China over the past few years -- budding companies taking advantage of the same tremendous economic opportunity that has made plenty of international investors rich. But I've found investments from another sector that are beating the pants off Chinese stocks -- and I know where you can find out more about them.

Would the real hot stocks please come forward?
The 5,400 stocks that more than 115,000 Motley Fool CAPS community members have rated include descriptive "tags" that group them with other companies sharing similar qualities -- a country of origin, a sector, or an end product, for example. The China tag in CAPS tells the story of a significant correction in the Chinese market this year -- the 196 stocks that make up this group have lost 27.4% in the past year, essentially matching the loss in the S&P.

The tools to sort CAPS tags can quickly lead you to stocks that have weathered the recent downturn better and outpaced even the near-term returns from the Chinese group: Casualty Insurance. This group comprises 100 companies that have outperformed the returns of the broader market with a 12.1% average loss in the past year.

Each group has its share of winners and losers, of course, but CAPS can be a great resource for zeroing in on potential opportunities in each area.

From macro to micro
You can sort tag groups by their CAPS ratings, from one to a maximum five stars, and then see which players -- from Wall Street to Main Street -- are bullish or bearish on a company, and why.

For instance, here are a few of the stocks in the Chinese group:

Sources: Motley Fool CAPS and Yahoo! Finance, as of Sept. 29.

Now, based on the interest in the CAPS community, here's a sampling of Casualty Insurance stocks that investors may want to consider.

Sources: Motley Fool CAPS and Yahoo! Finance, as of Sept. 29.

Combing value with profits
Insurance provider Montpelier Re started the year off on a slow note with a weak first quarter that included higher risk and investment losses, posting net income of just $300,000. But even with a bleak outlook painted for 2008, the company was able to pick up the pieces in the second quarter and deliver positive net income with lower catastrophe losses. The lower losses contributed to an improved combined ratio -- which compares the losses and claims paid out to the premiums collected -- of 57.7% compared to 70.0% a year ago.

Insurance magnate Warren Buffett has noted that competition has been heating up in the insurance and reinsurance industry, which could tighten future profits in the industry. But even with this shadow cast over the group, many CAPS investors like the current position of insurance stocks today -- for its part, Montpelier Re has a low 5.8 earnings multiple and a book ratio of 1.0. With many seeing insurance stocks as a great value play during down cycles, 96% of the 2,695 CAPS members rating Montpelier Re expect it to outperform the market going forward.

The gold standard
With a significant portion of its business involved in both the insurance and reinsurance, Berkshire Hathaway conducts its insurance business world-wide through approximately 60 domestic and foreign entities. While some have questioned the logic of being exposed to insurance risks -- particularly in times of natural disasters -- the long-term track record speaks for itself. For 40 years, Berkshire’s book value has grown at more than 20% annually by taking advantage of market pessimism and then patiently collecting the returns.

While the insurance components to Berkshire have provided much of its past success, increased industry competition has recently led to lower underwriting profits for Berkshire’s insurance group, and the lower profits are expected through the year. But many believe the panicky market we have today is the best time to be anchored in a stock like Berkshire. More than 98% of the 3,477 CAPS members rating Berkshire Hathaway's B shares remain bullish on the stock and see it outperforming the market.

Before you buy ...
Of course, what's happened in the past is no indicator of where investors should be putting their capital now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify trends that may significantly affect investments. Just make sure to do your own due diligence rather than simply following crowds or individual recommendations.

On Oct. 7, 2008, Fool Co-Founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.