The Best Stock in China

If you think the dollar is doomed, you aren't the only one.

My fellow Fool Tim Hanson, co-advisor for Motley Fool Global Gains has warned of the dollar's demise for months now. So has Warren Buffett. Fortunately, neither of these guys has abandoned all hope. Even if the greenback gets a nasty case of gangrene, you still have ways to survive -- and even profit.

Your best bet may be to invest in the stocks of foreign firms that denominate revenue and earnings in stable currencies. China's yuan is one that Tim and Global Gains co-advisor Nate Parmelee like, and for good reason. The Sino superpower has a history of harvesting multibagger stocks that trade on U.S. exchanges. Here's a look at the top five over the past year:

Company

Recent
Price

CAPS Stars
(out of 5)

1-Year
Return

Universal Travel Group (NYSE: UTA  )

$13.60

****

301.2%

KongZhong Corp. (Nasdaq: KONG  )

$14.76

****

292.6%

China Green Agriculture (NYSE: CGA  )

$11.77

****

259.9%

China Techfaith Wireless

$3.31

***

255.9%

Sinovac Biotech (NYSE: SVA  )

$8.88

**

270%

Sources: Motley Fool CAPS, Yahoo! Finance. Data current as of Sept. 18.

Why your portfolio should like Chinese
China is still on a massive growth trajectory, as far as investor, Princeton professor, and A Random Walk Down Wall Street author Burton Malkiel is concerned. He told attendees of last fall's Asia Pacific and Emerging Markets Equity Conference that Chinese stocks represented an unprecedented investment opportunity.

Admittedly, I've some doubts about this. I wonder how you condition a culture of savers -- the personal savings rate is close to 40% in China, reports Toronto's Globe and Mail -- to become a culture of consumers, especially after the meltdown we've seen here in the U.S. China's export manufacturing-driven economy can only stretch so far; consumer spending will have to fund growth at some point.

Our 140,000-plus Motley Fool CAPS community is less skeptical. Fools give four of five stars to the average Chinese stock in CAPS, which tracks 212 Sino issues trading on American exchanges. Lihua International (Nasdaq: LIWA  ) is their top overall pick. The details:

Metric

Lihua International

Business Description

A new public offering, Lihua is a manufacturer of magnet wire for industrial uses. The company also owns a subsidiary that sells recycled copper wire.

CAPS Stars (out of 5)

*****

Total Ratings

25

Percent Bulls

100%

Percent Bears

0%

Bullish Pitches

5 out of 5

CAPS Members Bullish on LIWA Also Bullish on

Vale (NYSE: VALE  )
Shengdatech (Nasdaq: SDTH  )

Data current as of Sept. 22.

Certainly the numbers look enticing. Capital IQ shows return on equity improved to 40% over the trailing 12 months, from 38.8%. Return on capital rose to 26.9% over the same period. Those numbers have inspired some CAPS members to give the stock a green thumb.

"I am in with real money on this one. It looks like an incredible opportunity to get in close to the bottom on a Chinese firm selling infrastructure needs," wrote CAPS investor jed71 last week. "ROE is through the roof and sales / income growing very quickly."

But is Lihua a bargain at roughly 9 times trailing earnings? I asked Global Gains co-advisor Nate Parmalee:

There is no real moat, it's a commodity business. Also, there is potential for dilution from convertible preferred shares and warrants. Absent some great growth in the near-term that I'm missing, which takes the converts out of play, I'd stay away.

Do you agree? Would you buy Lihua International at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

Each month, Tim Hanson and Nate Parmelee spotlight promising international stocks in Global Gains. Try this market-beating service risk-free for 30 days and get access to all of their recommendations and special reports.

China Green Agriculture is a Global Gains pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy was small and cuddly. Once.


Read/Post Comments (4) | Recommend This Article (34)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 22, 2009, at 6:22 PM, deadlysaber wrote:

    Currency exchange rates are constantly fluctuating and can change the value of your investments. If the base currency of your investment is different than the currency you are purchasing with, then the value of your investment will fluctuate depending on the currency exchange rates. For example, if you buy a China growth mutual fund whose base currency is the Chinese Yuan, and you buy it in US dollars, then any increase in the Yuan will work in your favor when you sell the investment, and any decrease in the Yuan will work against you when you sell the investment. This risk can not be eliminated and it is best to have a balance of hard currencies. Hard currencies are basically trusted currencies of stable countries with consistent fiscal policies.

    ----------------------------

    Money without intelligence is like a car without a road.

    http://www.intelligentinvestingtips.com

  • Report this Comment On September 23, 2009, at 11:12 AM, jed71 wrote:

    Nothing cracks me up more than a pundit coming out saying how terrible an investment is one day before it shows 20%++ gains...

    Thanks, Jimmy Cramer!

  • Report this Comment On September 24, 2009, at 2:25 PM, CLCB wrote:

    I like Chinese contemporary art as an asset diversifier, since prices for top contemporary artists have readjusted in the last year. Personally I think investors are best off looking at global mixes of art to beef up their portfolio, especially since emerging art markets like China are at a good price point right now.

    I think the 2008 readjustment of prices for contemporary Chinese art -- a readjustment that affected all asset classes and not just art -- will, in the medium- to long term, be a good thing, since stronger artists and better art will keep (and grow) their value while poor quality art and uninformed speculators will have no place in the market.

    http://bit.ly/yVH6y

  • Report this Comment On October 03, 2009, at 4:51 AM, FinerPoints wrote:

    The bottom line is that they make money and are running business efficiently. Sounds to me like the bigger boys will eventually want to swipe them up instead of letting them grow and then having to compete with this company.

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