The Safest Way to Play China Now

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Ctrip.com International (Nasdaq: CTRP). Are institutions bullish or bearish when it comes to this travel agency specializing in Chinese destinations?

Foolish facts

Data current as of Feb. 15.

We don't have exact figures for the size of the Chinese travel market, but what's happening in nearby Hong Kong may serve as a fair proxy. Last year, the region's main airport served a record 50.9 million passengers, The Washington Post reports.

More growth is coming. The International Air Transport Association estimates travel to and from and Sino Superpower will grow 11% by 2014, resulting in 181 million new domestic and 33 million new international flights. Ctrip will undoubtedly help book a healthy portion of those trips, and at an excellent margin.

Why? Unlike U.S. counterparts Expedia (Nasdaq: EXPE) and Orbitz Worldwide (NYSE: OWW), Ctrip isn't burdened with adversarial relationships with China's airline and hotel industries. To the contrary; they seem all too happy to work with a travel agent. Mix in Ctrip's lower labor costs and it's not difficult to understand why Ctrip keeps more than $0.30 of every dollar of revenue. Orbitz, on the other hand, hasn't booked a profit in years while Expedia usually keeps $0.10 to $0.12 for every dollar it takes in.

With these advantages, I wonder if Fool co-founder Tom Gardner was being conservative when, in the pages of the May 2006 issue of our Motley Fool Hidden Gems newsletter service, he predicted that Ctrip.com would grow to become a $10 billion company within a decade.

"I believe China, at today's valuations, looks more like the U.S. market in the early 1980s than our market does today. If I'm right, there will be some monster long-term winners, Ctrip among them," he wrote at the time. Five years later, Ctrip now commands $5.7 billion in market value.

Three times Tom picked Ctrip.com to outperform in Hidden Gems, and he's been right in each instance. Two of his recommendations have quintupled as of this writing. The other tripled. It's a smashing Foolish success story that, judging by Big Money buying patterns, is far from over.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's. *Indicates the number of shares owned.

But it didn't always look this way. Fidelity's funds sold a huge block of shares -- almost 16 million -- in last year's second quarter. Fido has sold an additional 3 million shares since. Yet few institutions have followed its lead.

Most bought more instead. For example, T. Rowe Price (Nasdaq: TROW) more than tripled its stake in Ctrip following the Fidelity sell-off. Ken Heebner's CGM Focus (CGMFX) purchased 2.2 million shares last fall, Morningstar reports.

Competitor and peer checkup

Source: Capital IQ. Data current as of Feb. 15.

Color me unsurprised. Ctrip has one of the better ownership profiles among its peer group. Insiders haven't completely abandoned the stock. Three of the company's co-founders own a combined 1.8% of the business.

Institutions also have yet to fully commit to Ctrip. While I'd prefer to see them owning less than 85% of the business -- closer to 65% would be best -- there's still room for new Big Money buyers to get in. Not so at priceline.com, where institutions already own close to 99% of the shares outstanding.

And they will want in. Globalization can't help but spur demand for more overseas travel, especially to China. With a reasonable price, excellent margins, and engaged founders, Ctrip.com offers the best way to play the trend.

Do you agree? Disagree? Let me know you would rate Ctrip.com International using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

Interested in more info on the stocks mentioned in this story? Add Ctrip.com, eLong, priceline.com or Universal Travel Group to your watchlist.