A Beginner's Guide to Chinese Technology Stocks

China is a big deal.

In Jeremy Siegel's The Future for Investors, he leaves no doubt that the future of the global economy depends heavily upon the development of the Chinese (and Indian) middle class.

Clearly, this represents an enormous opportunity for investors, but where do we even start?

Truly, a "beginner's" guide
I'm not here to tell you that I'm an expert on Chinese stocks: I've never been to the Far East, don't know how to speak Mandarin, and don't have a single Chinese stock in my portfolio.

So why should you continue reading this article?

It's because I'm in the exact same place as you, dear Fool.

I want to be able to profit from this undeniable trend just as much as everyone else, but I'm not quite sure where to start. The key difference I have working for me is that I'm lucky enough to be surrounded by other Fools whose only job is to know the Chinese market inside and out.

Step 1: Choosing stocks to research
Although I realize that life in the U.S. is nothing like life in China, I like to get an idea for what these Chinese companies do. I do that by simply saying, "Oh, so that's the [fill in the blank] of China!"

Here are seven stocks that are on my list to research, who their American equivalents roughly are, and -- in-part because many of them recently had an IPO pop -- the amount below their 52-week highs they are right now.

Source: Google Finance.

Step 2: The cold, hard numbers
Some of these companies are so new to the market that they don't have much history to judge. We don't like to get too worked up over analysts' estimates here at the Fool, but left with little else to go on, I looked up each company's forward P/E. This lets me know how expensive a company is relative to its predicted earnings. I also included their projected earnings per share over the next four quarters and the number of analysts following the company.

Source: E*TRADE.

Clearly, such sky-high (or nonexistent) forward P/Es are enough to make any value investor duck and cover. That being said, a company's forward P/E is just one of many metrics I'm looking at when evaluating these stocks. With companies that are so new, so small, in a market with such potential, and so few analysts following them, it can be tough to figure out which metrics matter.

Step 3: What do people smarter than me think?
Like I said earlier, I'm no genius when it comes to Chinese technology stocks. Luckily, we have some people far smarter than I am writing in this sector.

• Dangdang definitely isn't one of Fool Rick Munarriz's favorite stocks. "Just 1% of Dangdang's revenue is making it all of the way down to the bottom line," Munarriz says. "That's pathetic!"
• Youku doesn't fare very well either in the Foolish universe. It was recently highlighted as a stock to throw away. The reason basically had to do with the costs associated with the content it provides, which are so high that the company sports negative gross margins before even factoring in operating costs.
• Renren, you will learn from this Foolish writer, might have 117 million activated users, but there's reason to be cautious: A future partnership between the real Facebook and Baidu would be hard to compete with.
• If ChinaCache's reasonable-looking forward P/E has you interested, fellow fool Matt Maidhoff nicely outlined the company's prospects in his CAPS pitch. Matt likes the stock because regulatory restrictions prevent multinational companies from having a significant presence, a good thing for ChinaCache.
• If you're looking for more positive news, check out what Fool Rich Duprey has to say about Qihoo 360. Among other things, Qihoo's Internet browser is second behind Internet Explorer, its security products have a nearly 85% Chinese user penetration, and the company saw its revenue soar by 79% last year.
• Staying on the more up-beat path, Fool Rick Munarriz has nice things to say -- this time about SINA. The company's Twitter-esque Weibo has 140 million registered users in China, and it is targeting 200 million by the end of the year.
• And finally, when it comes to Baidu, there are lots of reasons to buy in. Among those reasons: The valuation is tempting, and there are catalysts everywhere that could push the stock's price higher.

Step 4: Dig deeper
Hopefully, this will serve as a nice starting place in your search for the perfect Chinese stocks.

If you'd like to dive even deeper, our Motley Fool Global Gains team is in China right now investigating companies. You can get updates from the team absolutely free just by clicking here. In the meantime, add these stocks to your watchlist to keep updated on any new developments.

• Add ChinaCache to your watchlist.
• Add Dangdang to your watchlist.
• Add Youku.com to your watchlist.
• Add Renren to your watchlist.
• Add Qihoo 360 to your watchlist.
• Add SINA to your watchlist.
• Add Baidu to your watchlist.