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:

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:

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.