Best International Stock: Focus Media

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Ouch! Turbulent times in U.S. markets. Fortunately, there's plenty of growth still to come from China.

Consumer spending is expected to explode there in the coming years. This trend is backed by the Chinese government's desire to fuel consumer spending, and a new generation of spenders in China seems to be replicating our own materialistic society.

Focus Media (Nasdaq: FMCN  ) is positioned to take full advantage of the enormous profits that the leaders in consumer marketing will reap in China. Focus is a classic Chinese growth story; it is thriving on the growth of the Chinese economy, the burgeoning middle class, and even the Olympics.

Carve out your niche and then Focus
Focus Media dominates the out-of-home advertising market in China. It provides advertisers with custom targeting and ultimate convenience by operating more than 135,000 LCD displays, 170,000 poster frames, and 200 outdoor billboard displays in more than 90 cities. These displays are everywhere from hypermarkets and shopping malls to elevators and hospitals. Focus even recently signed a deal to operate a 1,500-square-foot digital billboard on a boat operating alongside Shanghai.

Focus has separated itself from its competition by becoming the top dog in a growing industry. Over the past two years, it has grown at a breakneck rate by swallowing up its rivals, including its largest competitor, Target Media, in 2006.

Focus has a history of successfully integrating acquisitions while maintaining robust margins. Its reach in an emerging market gives it a durable competitive advantage through sheer size and pricing power with the largest advertisers.

The budding middle class
The growth prospects for a first-mover like Focus are tantalizing when you combine China's three-decades-long GDP explosion with its emerging middle class. The growth opportunities aren't in the cities you've heard of, like Shanghai and Beijing, but in the second- and third-tier cities. As the middle class in these cities continues to grow, demand for advertising targeted to these people will grow in lockstep. As the market leader, Focus is in the best position to reap these rewards.    

It is also in a position to be a major benefactor of the Summer Olympics in Beijing, where it has tons of advertising displays. Advertising revenue should soar with increased pricing power as companies compete for opportunities to build brand awareness.

The Internet offers Focus a longer-term growth opportunity. As the Chinese become more proficient with the Internet, Focus intends to grab a good share of those profits by acquiring Allyes, the largest technology systems provider for Internet advertising in China. Allyes specializes in technology. Its application suite, AdForward, is used by more than 80% of independent commercial websites and ad agencies, including SINA (Nasdaq: SINA  ) .

Who's No. 1?
What is the best international stock for your money now? Focus has an exciting growth story with a niche in an expanding Chinese industry and economy. Boasting plenty of cash, no debt, and net margins of 33.5%, it is positioned to take full advantage of future opportunities.

Some may think Focus is expensive, but many believed Chinese companies such as Baidu.com (Nasdaq: BIDU  ) , Ctrip.com (Nasdaq: CTRP  ) , and Sohu.com (Nasdaq: SOHU  ) were overvalued during their ascent. Even if you had waited to buy shares of Ctrip.com until late in 2006 -- after shares had already tripled in value -- you still would have doubled your money in less than a year.

And compared with these other three, Focus Media's P/E of 45 is downright cheap. Ctrip and Sohu have P/Es in the 70s; Baidu's is in the triple digits. 

Don't miss the boat (the one with the 1,500-square-foot digital billboard). Vote outperform today for Focus Media in our Best International Stock  contest in Motley Fool CAPS. Then check out what our CAPS community has to say on more than 5,000 stocks.


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