Well, it looks like my article on China last week raised some new questions for you and some of your fellow investors out there. One of the questions that hit TickerHound as a result was:

“Ok, China’s a great place to be — but what stocks can we invest in for the long term?”

Now I tried to stay away from this question when writing my original article. If you don’t have the time to really study this sector, then you’re better off finding one of the ETFs that tracks China’s markets and investing directly into those instead. But I can understand that some people out there do, in fact, have the time to study individual equities in this sector and just need a push in the right direction.

So for today’s article, I’m going to discuss one stock that has served me well for a long time and that I think will continue to outperform the market over the long haul.

But before I get into that, here are a couple of those China ETFs I was talking about. They’re definitely worth looking into if you want some exposure to China but don’t have the time to dig too deeply into the Middle Kingdom:

• SPDR S&P China ETF — Symbol: GXC
   
• iShares FTSE/Xinhua China 25 Index Fund — Symbol: FXI

Both funds have been down this year, along with the equities markets in China, but as I said, this is for those who have a LONG TERM belief in this market and are looking to position themselves for the long term.

Stock Picking in the Far East

For me, investing in China is a no brainer…

We’re coming into a country while it’s still very early on in its growth phase. The economic picture is improving each month. And the companies don’t have to be terribly innovative in order to profit — all they really need to do is take a page from the playbooks of their Western counterparts and they have an instant recipe for success.

So when I look for individual stocks to buy, I try to take a top-down approach.

First I try to identify the most rapidly growing markets on a global scale — that’s how we got to China in the first place.

Then I try to find the hottest sectors in these markets.

Right now, I think you’d have to agree that the hottest sectors in China are commodities and technology.

From there I try to find the sectors that I know the most about — in this case, it’s going to be technology (in particular, wireless technology).

And finally I try to find the strongest companies within that sector.

Then all you have to do is make sure you’re buying the stock at a reasonable price and from there it’s like shooting fish in a barrel!

So now that the stage has been set — we’re looking for the strongest wireless companies in China — we can discuss the one stock I think could show long-term oriented shareholders some very handsome profits for many years to come.

And that stock, my friend, is China Mobile (CHL: NYSE).

Here’s the quick n’ dirty:

• China’s population is at about 1.6 billion people.
   
• There are only 555 million mobile subscribers — that means almost two-thirds of China’s population still does not have mobile phone service… Essentially, there’s A LOT of room for growth here.
   
• China Mobile holds the dominant position in the market with roughly 450 million subscribers!
   
• The company has made a major push into rural areas to scoop up customers before the competition, thus cementing their position in the market even further.

The bottom line: The wireless penetration rate in China will continue to increase and China Mobile will likely be the company most people will be using.

That means BILLIONS of dollars in recurring subscription and services revenue for China Mobile — and some serious profits for shareholders.

While the rest of the market in China has done well over the last 12 months (up roughly 45%) China Mobile did even better than that, rising almost 90% in the same period!

What About the Price?

Great question!

China Mobile’s closest competitor, China Unicom (CHU: NYSE), has a P/E of about 40. China Mobile’s is approximately 33.

That means, relative to its peer, China Mobile is trading at a serious discount given how much larger and more successful the company is.

The stock is 15% off of its October/November high and to me that smells like a buying opportunity.

So for those who are looking for some long-term exposure to one of the strongest companies in the hottest sectors of the fastest growing market in the world, then China Mobile is the place to be!

Click here to share some of your long-term stock picks in China, too!

Sincerely,

Wayne Mulligan
May 6, 2008

Editor’s Note: While China Mobile isn’t quite a penny stock, Wayne still sees some upside there. But obviously, it’s more difficult for that company to double in size as opposed to the two we just worked out in our latest issue of Penny Stock Fortunes.

Penny Sleuth Contributor

The Penny Sleuth also features commentary by other financial analysts, small-cap experts, investment gurus and an array of contributors from various fields and occupations. Their diverse insights and contrarian investing ideas are hand selected by the Penny Sleuth editors.

Special Report: HOW YOU COULD TURN $200 INTO $1.2 MILLION!

More on this topic (What's this?)

“The Top Chinese Company on my Radar Right Now …” (Stock Gumshoe, 9/24/09)

“Your Next Triple … the $10 Stock Bringing Electricity to 30 Million Chinese” (Stock Gumshoe, 10/13/09)

The Chinese Aren’t Scared by High Gold Prices … They’re Buying! (Red Hot Energy and Gold - Global..., 10/9/09)

Read more on Investing in China, Wireless at Wikinvest

View articles by Penny Sleuth Contributor