These Stocks Beat Chinese Stocks

Over the past few years, investors have realized that the tremendous growth in the economy of the People's Republic of China has opened up many profitable investment opportunities. But I've found investments from another sector that are beating the pants off Chinese stocks ... and I know where you can find out more about them.

Would the truly hot stocks please come forward?
The 5,400 stocks that our Motley Fool CAPS community members have rated include descriptive "tags" that group them with other companies sharing similar qualities -- a country of origin, a sector, or an end product, for example. Clicking the China tag pulls up a list of 134 stocks that collectively have risen 12.2% in the past year.

But CAPS tags can also lead you to stocks in a category that has outpaced the returns from the China group: Cigarettes. These eight companies have averaged a more impressive 18.7% return in the past year.

Each group has its share of winners and losers, of course, but CAPS can be a great resource for zeroing in on potential opportunities in each area.

From macro to micro
You can sort tag groups by their CAPS ratings, from one to a maximum five stars, and then see which players -- from Wall Street to Main Street -- are bullish or bearish on the company, and why.

For instance, here are a few of the stocks in the China group:

Now, here's a sampling of cigarette stocks that investors may want to consider, judging by the interest they've generated among the CAPS community.

Kicking the profit habit
While many people consider cigarette companies "sin stocks," you can't argue with the tobacco industry's long-term returns. Altria (parent company of Philip Morris) has consistently outperformed the market over decades, and it has provided exceptional returns to investors, despite multibillion-dollar lawsuits and exorbitant cigarette taxes in the U.S. and elsewhere.

Though tobacco producers are suffering a 3% to 4% sales volume decline in the U.S., Altria has been able to offset this with increased pricing and expansion into new markets internationally. The company spun off its Kraft Foods division last year, and will soon spin off its international operations to shareholders as well. Come March 28, shareholders will get one share of Philip Morris International (PMI) for each share of Altria they hold. With this spinoff, investors hope to better realize the value of international operations, which are still growing at a solid clip.

CAPS investors remain overwhelmingly bullish on Altria. Of the 5,179 investors who've rated the company, 5,024 believe the firm will smoke the S&P 500 in the future. Their rationale includes strong management, a generous dividend, and plenty of opportunity left in international expansion.

Putting the cool back in smokes
With a market cap just shy of $150 million, Star Scientific is 1,000 times smaller than Altria, and absolutely dwarfed by each of its larger tobacco brethren. But the company is making quite a name for itself by promoting technology that reduces the toxins in tobacco products.

While Star Scientific has stopped selling discount cigarettes, the company still distributes smokeless tobacco products. But the big story surrounding Star Scientific is its patent-infringement lawsuit against Reynolds American subsidiary R.J. Reynolds, originally filed in 2001 and still in progress today. As the exclusive licensee of a patent covering a tobacco-curing method that removes much of its cancer-causing carcinogens, Star Scientific believes that Reynolds owes it substantial financial compensation for using a similar method.

Of course, R.J. Reynolds disagrees. A solid contingent of CAPS investors also doubt the lawsuit's success, with 83% of the CAPS All-Stars who've rated the company going thumbs-down on Star Scientific's future prospects.

Before you buy ...
Of course, investors shouldn't look in the rearview mirror to see where they should be investing now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify macroeconomic trends that may significantly affect investments. Just make sure to do your own due diligence, rather than following crowds or individual recommendations.