Chris Rowe

Two China Growth Stocks the Experts Missed

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Focus Media Holding Ltd. (FMCN) -- currently trading at $7.90

Here's a stock that's off its high of about $68 that's trading at $6.90. Did I mention that about $2.90 per share is in cash? The company has no debt and the stock has a P/E ratio of 4. Back out the cash and you have a business valued at $4 that expects to earn $1.17 in 2009 trading at a 70% discount to book value.

The stock got knocked down from $16 to $9 when they reported a quarterly profit that missed analysts' expectations, and forecast fourth-quarter results below estimates. Fortunately for long-term players, this caused a big panic in one of the scariest stock markets ever. (Like I said, "awesome!")

6-Month Daily Chart -- FMCN

3-Year Weekly Chart -- FMCN

Analysts' earnings forecasts averaged 53 cents per share, but the company earned $51.3 million, or 38 cents per share. Total revenues grew 63.7% year-over-year, and it lowered forecasts for the fourth quarter.

Why did the stock drop by so much? You would have been scared, too, if you read what Tan Zhi, the CEO, said: "The macro headwind we are facing is the most severe in the modern history of the Chinese advertising industry."

But the company is buying back its own stock. (As of Nov. 10, 2008, the company had repurchased approximately 1.6 million Focus Media ADRs in the open market under its previously announced share repurchase program.) Management also owns 11% of the stock. In the same announcement, Zhi said, "We believe Focus Media is better positioned today than ever to face today's challenging macro backdrop." It's funny how investors focus on one part of the quote or another depending on whether we are in a bull or bear market.