The Motley Fool Global Gains team is leaving for China in search of promising investment opportunities in that exciting emerging market. Ahead of the trip, we wanted to know two things:
1. What are they looking for in a promising Chinese stock?
2. What company are they most excited to meet with during the trip?
Here's what they had to say ...
Rich Greifner: I think we're all looking for a company that's poised to ride the tailwind of a surging Chinese economy -- but that doesn't mean we need to limit our search to only Chinese companies. I'm looking for a company that will not only benefit from a stronger Chinese consumer, but also has sound financials, shareholder-friendly management, and perhaps even a steady dividend -- the best of both worlds.
One obvious candidate is YUM! Brands (NYSE: YUM ) . The first quick-service restaurant chain to enter China, Yum already has over 3,000 restaurants in the Middle Kingdom, on its way to a target of 20,000 units. I'm eagerly anticipating a visit to Yum's East Dawning restaurant -- which serves Chinese fast food instead of pizza and fried chicken -- when we visit Beijing.
Nate Weisshaar: As I head to China, I'm really looking for a company that is going to help me time travel. Just to clarify, I want to find a company that gives me the opportunity, from an investing standpoint, to turn back the clock. The great thing about developing markets is they give us the chance to find the Chinese version of AT&T or Wal-Mart before they get too big. On this trip, I'd love to find the next great Chinese consumer brand or retailer.
The name that jumps to the top of my list is China Nepstar Chain Drugstore (NYSE: NPD ) , which could ride the convergence of China's demographics, the implementation of universal health care, and rising incomes to become the Chinese CVS or Walgreen. I have some questions about their expansion plans that I hope management can clear up for me, but I think Nepstar has the chance to be really big down the road.
However, if we do stumble across a company that has perfected time travel, the preceding two paragraphs will never have happened.
Tim Hanson: I'm not sure there's any topping Nate's answer, and I'm looking for very much the same opportunities. We were told last year that China's in just the sixth inning of its growth story, but I'm not sure the country is even that far along. Urban disposable income has risen 12% annually over the past decade and continues to grow -- creating an ever-larger consumer class that should drive growth for another decade or more.
To that end, the meeting I'm most excited for this year is the tour we're planning of Melco Crown Entertainment's (Nasdaq: MPEL ) new City of Dreams casino in Macau. Macau's revenue growth has been massive this year and with a concept tailored exclusively to Asian tastes, Melco should be able to pick up market share as awareness of this new facility builds.
Nathan Parmalee: No doubt about it, I'm hoping to find a promising consumer focused company on this trip. If it looks like we're all keying on a similar theme, it's probably because we are. China's economy has been driven by government spending on infrastructure for the last decade and to balance out its economy and put it on a healthier long-term growth track, China needs to boost consumption. Making the transition to more of a consumer economy and greater internal consumption could take years, but that is also what makes it an attractive growth opportunity.
We're meeting with a number of consumer-focused companies, and Tim and Nate have already hit on two I'm very excited to meet with. But there is one other I'm looking forward to. Natural Beauty Bio-technology (Pink Sheets: NBBTF.PK) took the unusual step of removing franchisees from its roster last year, which knocked its sales and earnings off their previously stable growth trajectory. The willingness to sacrifice the short term for the long term is something I always like to see, and I'm looking forward to hearing more about Natural Beauty's plans for the future.
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