Henan Zhongpin: A Stealth China Play

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With the slowdown in the U.S. economy hitting nearly every industry -- and investors' wallets -- it's no wonder so many investors are downtrodden. But don't fret! There are many opportunities for intelligent investors, especially outside the U.S.

One such company, Henan Zhongpin (Nasdaq: HOGS) is currently undervalued and underfollowed, a strong indication of a fantastic investment.

Hewhat Zhongwho?
I'm not surprised you haven't heard of Henan Zhongpin; I'd be surprised if you had. It has been listed on the Nasdaq Global Select market for only five months, and only one Wall Street analyst follows the company. That analyst currently rates it a "buy," but we Fools know to put about as much faith in analyst recommendations as we do in alchemy.

Now that I have your attention
Zhongpin is a rapidly growing pork producer that you might call a Chinese version of Tyson Foods (NYSE: TSN) or Hormel Foods (NYSE: HRL). The company emerged during the reformation of the agricultural industry, and has since become a poster child for the technological advances the industry has witnessed. Traditionally, pork products were purchased at "wet markets," that is, outdoor, non-refrigerated butcheries. Needless to say, this process was slightly archaic and downright unsanitary.

Zhongpin recognized the need to establish clean facilities for hog slaughtering, as well as the importance of cold chain logistics, to ensure the increasing demand for sanitary pork products was met.

But, but ... does the PRC back it?
Great question! The Chinese government has been known to side with some companies and demolish others through bureaucracy. So it's very important to gauge a company's relationship with the People's Republic of China, especially those that operate within China. And to answer your question, yes.

In September 2007, Zhongpin announced that it was honored with that year's awards for "China Top Brand" for its fresh pork and low-temperature prepared pork products. The selection criteria include categories such as quality, market share, development capability, and social responsibility.

Fourteen companies earned the title for fresh pork, and eight received the award for low-temperature prepared meat products. Zhongpin was one of five companies that was awarded for both products.

Great company, great price
Warren Buffett has said he prefers to buy great companies at fair prices. I tend to subscribe to that belief, and Zhongpin is certainly a great company. Is it valued fairly?

To properly value Zhongpin, we first turn to the tried-and-true value metrics. The P/E ratio is a paltry 13, while the growth rate of the company is pegged by analysts at 45% per annum. Doing some quick math (or just looking it up, which is far easier for us lazy folk) shows us that the P/E growth ratio (PEG) is under 0.3. Let me rephrase: Zhongpin is growing three times faster than what the market currently prices it at.

OK, but what's the catch?
With the cost of feed rising, Zhongpin will face considerable pressure on its margins, as was evidenced by a 10% earnings miss in the fourth quarter of 2007. Luckily, Zhongpin is able to pass on most of the cost increases to the consumer.

Foolish conclusion
To be sure I'm not delusional, let's check what the Motley Fool CAPS community says about Zhongpin:

Metric	Zhongpin
CAPS stars (5 max)	*****
Total ratings	169
Bullish ratings	166
Percent Bulls	98.2%
Bearish ratings	3
Percent Bears	1.8%
Bullish pitches	37
Bearish pitches	2

There you have it. More than 98% of the CAPS community members who rated the stock think it will outperform the S&P 500. To tie it all together, let's go over why I believe Zhongpin is a fantastic investment:

• Zhongpin is in a growing, vital industry in the largest country on earth.
• It produces pork, which accounts for 70% of the meat consumed in China.
• It is in good standing with the PRC.
• It's undervalued.
• It's underfollowed.
• It's growing.
• The CAPS community loves it!

My, oh my, how I enjoy finding undervalued, underfollowed growth stocks.

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