For investors who’ve been wary of investing abroad in recent years, that’s a telling metric. Unlike the fragile, tentative recovery we’re experiencing here in the United States, China’s economy is pushing ahead.

September’s manufacturing data are far from the first sign that China is a wise choice for U.S. investors in 2010. Earlier this year China’s economy moved into the No. 2 spot in the world, usurping Japan’s place on the list of largest economic powers. In all, it’s just the latest chapter of what’s been a tremendous growth story for the last three decades.

China’s economic growth has far outpaced U.S. GDP in the last few decades, giving rise to a new, high-consuming middle class.

If you’ve been following our analysis of investing in China for the past few months, you know that we’re big believers in the consumption spree that China’s burgeoning middle class is starting on. An estimated 50 million people per year are being added to the Chinese middle class — a group that already includes around 20% of Chinese households. While members of the “middle class” in China have much lower incomes and spending power than their Western counterparts, their sheer numbers make the potential rise in spending truly significant.

And one of the biggest industries to benefit from that increased spending is the travel business…

In last month’s issue of Penny Stock Fortunes, we said that we were already bullish on the Chinese travel business (see Another Potentially Profitable China Play, September 2010)… And for good reason. Chinese airlines have seen record increases in passengers in recent years — and passenger numbers are expected to triple to 700 million annually in the next decade.

China Southern Airlines made news in 2009 when the airline recorded the third-largest passenger count of any airline in the world, making it the largest carrier in Asia — a first for any Chinese airline. But China Southern isn’t alone…More significantly, two other Chinese carriers made the top 10 list, eclipsing CSA’s passenger count by a landslide.

Airlines are just the tip of the iceberg. Right now, we’re seeing major segment growth in everything from hotels to tours. All in all, the Chinese travel industry is in full-boom mode — and this month, we’ve discovered a pure-play Chinese travel stock that stands to deliver 131% gains at current levels.

[Editor’s Note: Just before we recommended buying shares of this Chinese travel firm earlier this month, a misguided short attack sent shares lower, giving us a better buying price, and an even higher potential return. Our due diligence shows that this stock is more attractive than ever right now – and we’ve updated our Penny Stock Fortunes readers on the full details.

With shares just under our target buy-up-to price right now, there’s still time to buy this stock, but it won’t likely last long. To get our complete report on this exciting company, click here now…]

Sincerely,
Jonas Elmerraji
Penny Sleuth

September 30, 2010

Why We Could See a 131% Gain on This Chinese Travel Firm was originally featured in the Penny Sleuth.

It was the dead of summer, the market seemed to be taking a turn for the worst and the financial news outlets grabbed onto the China bubble story and ran with it. With our own stock market bubble still fresh on investors’ minds, many were opting to “play it safe” and avoid Chinese stocks altogether.

However, investors who sold China, I told you, may have made a huge mistake.

This is an idea that is again gaining traction in the media. Only a few months after the “sell China” crowd ’s protests echoed on every news station, “Maybe we shouldn’t ignore this opportunity” has become the new slogan.

It all began when China approached an important new milestone: Last month, it passed Japan to became the second largest economy in the world. Now, coupled with the resurgence of domestic stocks, it seems that the world is a bit more bullish on China’s prospects.

Hedge fund manager and author James Altucher succinctly argued China’s case in a recent New York Post article. One of his arguments perfectly sums up the powerful growth pattern China is displaying:

• 50 million people per year are being added to the middle class. The Chinese middle class has gone from 5% of the country to 25%. This is a huge demographic tidal wave that has ramifications in almost every industry, both in China and in the U.S.

• To ignore this tidal wave is to ignore stocks that will be multiplying their revenues and profits by tenfold over the next several years. Chinese auto, luxury, travel and gaming stocks will all benefit.

It’s difficult for us to state the ramifications of this economic shift. Fifty million people — that’s one-sixth of the entire U.S. population — making the move to a new economic class with money in their pockets is nothing short of a surge the likes of which the world has not yet seen.

Of course, countless businesses will benefit from the influx of new customers. (And we’ve found one penny play company in particular that will help the newly monied citizens of China spend their hard-earned cash.)

Selling to the New Traveling Class

Naturally, a variety of businesses will compete for the disposable income of the new middle class. Altucher mentions autos and travel as two prime sectors that will see a portion of this new money. Today, I want to focus on travel, and one virtually unknown company that you will get to know very well should you ever find yourself in a major Chinese airport…

But before I get into specifics, let’s take a quick look at the growth of air travel in China.

As it turns out, the growth is exactly what you would expect. Passengers are surging. In fact, China Southern Airlines now has the third-largest passenger count of any airline in the world, flying a total of 66.28 million people in 2009, according to World Air Transport Statistics by the International Air Travel Association. For context, China Southern was fourth in 2008, according to China Daily. Another Chinese airline, China Eastern, also eked onto the IATA list, at No. 9.

With air passengers shattering records, we looked for a stock that would benefit from the growing number of passengers — both domestic and foreign — passing through China’s major airports every day.

What we found was an emerging advertising firm that specializes in digital TV ads in airports across China. Now, this growing company is looking to expand its operations — and advance down the road to profitability.

The company operates big-screen digital ads — specifically, the “digital billboards” you see in some upscale shopping malls and other locations. Unlike its competition, however, the company I’m telling you about controls its ad space in 25 of the 30 largest airports in China.

In addition to this digital ad space, the company also sells ads on eight airlines — including China’s three largest carriers. The firm is also beginning to branch outside of airport advertising, having recently signed an exclusive agreement to operate outdoor advertising at service stations across the entire country of China.

I think that you’ll be hearing more about this company in major publication in no time…

[Ed. Note: Unfortunately, Greg can’t give away the name of this infantile company to such a broad audience like the Sleuth’s. However, he’s not going to tease you with it. There is still a way for him to give you the name of this little company, along with his advice for how to make it work for you. Just click here to learn more immediately…]

Sincerely,
Greg Guenthner
Penny Sleuth

August 20, 2010

Another Potentially Profitable China Penny Play was originally featured in the Penny Sleuth.

That’s not to say there aren’t stocks with that type of potential residing in China — in fact, someone asked an unrelated, but an interesting, question on picking small-cap stocks in China:

“How would you go about picking small-cap stocks in China?”

So this got me thinking — let’s say I took the analysis I began in my article from last week, and went a step further and tried to identify some small cap plays in China using a similar strategy.

My approach to the market, and this sector in particular, has always been to take a top-down approach. I try to find the strongest companies, in the fastest growing sector of the hottest markets. So let’s apply that thinking here…

The “hot” market is China and one of the fastest growing sectors is wireless technology. And now we’ll add some market capitalization requirements — let’s say that we’ll be examining wireless companies that are trading under a $500 million market cap.

Immediately, three companies show up on my radar:

• China TechFaith Wireless (CNTF: NASDAQ)
• Qiao Xing Mobile Communication  (QXM: NYSE)
• Orsus Xelent Technologies (ORS: AMEX)

China TechFaith designs and manufactures mobile handsets for the Chinese market and abroad. They’ve had a rough go of it for the last two years, but the last 12 months have treated the company well.

Next we have Qiao Xing Mobile, which also produces wireless handsets and has done very well over the last 12 months. However, the company has had a recent hiccup in the stock that has brought prices down a bit.

And finally we have Orsus, which produces more multimedia-oriented phones for the Chinese mobile market.

So now the question is, how do we narrow these down so we can find the strongest company out of the three?

Let’s start by setting up some basic criteria:

1. Since we don’t want to fish in a pond where the fish might be dirty, we’ll limit ourselves to a market cap of over $100 million.
   
2. Because I’m a value-oriented investor, I want to make sure the fundamentals are sound in any company I invest in. So, the next criterion we’ll setup is that the company has to be profitable for the last three years.
   
3. And finally we’ll want to make sure we’re investing in a company that has had some solid momentum behind it — so we’ll only look at the best performers for the last 12 months.

So here goes…

The best performers over the last 12 months, in order are: China TechFaith, Qiao Xing and Orsus. The only two companies that have been profitable for the last three years were Orsus and Qiao Xing. And since Orsus’ market cap is below $100 million, Qiao Xing is the only company that meets all of our criteria:

If you take a look at a chart of QXM you’ll see that the stock is down almost 15% in the last few weeks on a disappointing fourth quarter (even though they beat expectations). To me, it’s a temporary blip on the radar and it might be smart to buy on weakness here for the long term.

Click here to check out some other short-term China plays or to share some of your own.

Until next time,

Wayne Mulligan
May 6, 2008

P.S.: Penny Stock Fortunes editors Greg Guenthner and Jim Nelson recently recommended a tiny Chinese pharmaceutical company that is set to become the clear industry leader. So far, it’s paid off. In exactly one month, it’s up 45% for their readers. No worries though…

A Chinese Penny Stock for Your Portfolio was originally featured in the Penny Sleuth.