The Stock I Want to Buy in China

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.

Any of these stocks pique your interest? Put your email in the box below to get the team's notes from these meetings in your inbox.

Tim Hanson owns shares of Melco. and Nate Parmalee owns shares of Yum! Brands. Neither Rich Greifner nor Nate Weisshaar own shares of any company mentioned here. Wal-Mart Stores is a Motley Fool Inside Value recommendation. Melco Crown Entertainment is a Motley Fool Global Gains choice. Motley Fool Options has recommended a bull call spread position on Yum! Brands. The Motley Fool has a disclosure policy.


Read/Post Comments (17) | Recommend This Article (46)

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 June 29, 2010, at 6:05 PM, whypher wrote:

    So this is why the service cost so much having all four fools fly to China? :) One thing you'll never know about their financials are they telling the truth or just saving face? That's the BIG problem with investing in China directly. Your better off investing in an American company with a large exposure to China. Until they figure out accuracy in their financial statements are more important than saving face.

  • Report this Comment On June 29, 2010, at 7:15 PM, Jkempland wrote:

    Look into the emerging stevia market and GLG Life Tech Corp. GLG is a Canadian based company with operations in mainland China.

    Chairman/CEO is Dr. Luke Zhang, 4th generation head of business, MD, PhD pharmacology, Vanderbilt University.

    www.glglifetech.com

    Poised with the right technology and backing to grow the all natural, zero calorie sweetener market. Primary customer - global agri-business giant, Cargill. NASDAQ: GLGL

  • Report this Comment On June 29, 2010, at 8:06 PM, Sleddawg63 wrote:

    I echo WHYPHER's sentiment. I got burned by the FUQI scandal and over three months later they still haven't released the true numbers from Q1 thru Q4. A Chinese company with an American auditing firm should be the least of your expectations.

  • Report this Comment On June 29, 2010, at 9:24 PM, kiwikeef wrote:

    Remember to check out other restaurant chains like Little SHeep. Also as chinese lives improve they want simple things like better underwear- especially women who want good quality lingerie and makeup and are willing to pay. The same goes for shoes and sports goods. CHinese people love european luxury brands and will buy quality fakes but there are some excellent local manufacturers creating products that appeal to locals. Buffet always said disposables are great products- always needing to be replaced like underwear and makeup. I'll be interested to see if you spot anything in these areas.

  • Report this Comment On June 29, 2010, at 9:34 PM, richie54 wrote:

    It would be nice if the four fools learned to find better investing opportunities in the U.S., first.

  • Report this Comment On June 29, 2010, at 9:57 PM, doriana wrote:

    AOB.

  • Report this Comment On June 30, 2010, at 1:58 AM, RCS2rocks wrote:

    @ richie54

    Motley Fool Global Gains- Get it? If you want domestic gains you will need to look at one of their other services.

  • Report this Comment On July 01, 2010, at 8:20 PM, DHMILL wrote:

    I don't want to make this too long as no one will read it. Re: deficits and declining revenue and loss of jobs. Declining revenue and loss of jobs are tied together. You don't have a decent paying job? Then you can not pay as much in taxes.

    This is the road construction season. It's going on in front of my house and nearly every where I drive. Road construction/repair is a government function. Paid for with OUR tax money!

    Do you notice along the highways how many of the construction machines are made in Asia? Not made in the U.S.A. but paid for with OUR tax money. Yup, you and I are subsidising jobs in Japan, Korea, China and elsewhere. You and I are paying for and thus causing some of the flow of the jobs to Asia.

    I recall that at least up until 1968, any government project, had to be done by American mad tools and machines, only! Using tools on a government project that were not made in the U.S.A. would get you fired!

    Up until that time, the United States was the strongest manufacturing country in the world.

    Who pulled the plug on us?

    I realize that using only American made tools and machines will not solve the entire problem. But consider this, this situation exists from the Federal level down to the State level down to the County level down to the city level and on down to the village level in every single state in the union.

    How many jobs would be created by those multimillion dollars being spent on American made tools and machines? Remember, this includes mining jobs, iron ore shipping, steel making jobs, foundry jobs, truck shipping, machine assembly jobs and so on.

  • Report this Comment On July 03, 2010, at 12:14 AM, weihou258 wrote:

    To invest or trade small cap chinese company stocks, you need timing them right. They will always be over sold or bought than others because China is a hot economic topic. The professional traders want and like them to be like this.

    I have made money on HOLI, CGA, CFSG, SDTH, SNDA. Some one may hate these, because lost money on them. Paid too much when bought them.

    When everyone is saying how good the Chinese stocks are, maybe it is time to sell. When everyone hates them, no one wants them, I think should start to think about buying (not there yet).

    I still own ABAT, CHNG, CPQQ. China is giving 30% off coupon on electric cars. They need energy, and they have closed thouthands samll coal mining companies for last several years. They have no choice to go with alternative energies if most people want to have a car. They do not have many bombs like US does.

    I made and lost money on TSL, JASO, YGE, JASO, LDK (not timing them correctly :)), I went back to China last year, I see almost every new or close to new home using solor to head the water. I believe solor will be used in cooling soon.

    For America China play, I own PEP , i think it is same as KO.

    I owned AMSC several times. looking buy back some shares below $25. I heared the #1 and #3 Wind enery companies (HuaRui and JinFeng, APWR is not the best in China) import turbine marchines from AMSC.

    If it is possible, hope team coming to China can check on ABAT and take some useful information back. I am planning to buy big position on ABAT. But not sure it is safe.

    Thanks

  • Report this Comment On July 03, 2010, at 4:04 PM, Modalics wrote:

    I like #EJ (E-China Holdings) the biggest real estate company in China, the biggest real estate market. The Modalics are good at 14% - not as good as many of the US Stocks we are currently tracking but we wanted to include a China Stock in our list of ten and this was the best we could find so far. More details at www.modalics.com/ej.html.

  • Report this Comment On July 03, 2010, at 5:03 PM, Winnerfrommidlan wrote:

    When you are checking out China Nepstar, you should also check out and compare to China JO-JO Drugstore. Its also growing fast and the PE is only 4.5 compared to 11 for Nepstar. The symbol for JO-JO is CJJD.

  • Report this Comment On July 06, 2010, at 10:26 AM, Bondmaster wrote:

    Global Hunter Securities reiterated Buy rating and $16 price target on Lihua International, Inc. (NYSE:LIWA).

  • Report this Comment On July 10, 2010, at 6:50 PM, easynow7 wrote:

    Is china a good long term bet? of course, they will be the next major power in the world any monopoly is surely worth a punt. People are so stupid the US is done!!!

  • Report this Comment On July 13, 2010, at 6:26 PM, dagrandpoobah wrote:

    I wouldn't say the US is done, at least not yet. I do think that at some point our unions and manufacturing policy is going to have to change. I mean if you look at our trade deficit it's 40 billions a month!

  • Report this Comment On July 16, 2010, at 5:28 AM, vancouverromeo wrote:

    Look at Macau gaming stocks - revenues rise at an amazing rate

    Some research on the sector:

    http://www.spacanalytics.com/modules/deals/frontend/spac_ove...

  • Report this Comment On December 13, 2011, at 4:48 AM, shopscounty wrote:

    You can find a lot of stores in China here:

    <a href="http://www.shopscounty.com">www.shopscounty.com</a>

  • Report this Comment On December 13, 2011, at 4:48 AM, shopscounty wrote:

    You can find a lot of stores in China here: www.shopscounty.com

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