Chris Rowe

Two China Growth Stocks the Experts Missed

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Zhi added, "Advertising in the world's most-populous nation remains a growing business. However, based on our discussions with our major advertising clients, we continue to expect there to be overall advertising market growth in China in 2009, as the Chinese economy will nevertheless grow but at a slower pace relative to 2008 and Chinese urban consumers will continue to grow in numbers due to continuing urbanization in major metropolitan areas."

Here's the company description from Yahoo Finance: Focus Media Holding Ltd. operates out-of-home advertising network using audiovisual digital displays in the People's Republic of China. Its out-of-home advertising network consists of commercial location network comprising LCD display network, outdoor LED billboard network and movie theater advertising network; in-store network; poster frame network; mobile handset advertising network; and Internet advertising services network. The LCD display network includes flat-panel television displays placed in high-traffic areas of commercial office buildings, such as in lobbies and near elevators, as well as in beauty parlors, golf country clubs, shopping malls, automobile repair shops, banks, pharmacies, hotels, airports and hospitals.

The next stock I'll talk about is one you're probably familiar with because it's considered China's Google ...

Baidu.com Inc (BIDU) -- currently trading at $137.66

This is the leading search engine for the Chinese market accounting for well over three quarters of market share. The stock is down about 315 points from its 2007 high of $430.

I don't have to tell you what it does -- because it's the same thing as Google, so let's just focus on financials. The return on equity is 38% with zero debt. The 5-year earnings growth rate is 230% but the 2008 and 2009 earnings growth rate is estimated to slow to 88% and 39% respectively (which is normal for a company at this stage of its growth cycle).

This is the king of the web in China, so the company is well out of reach of competitors. It can be taken down just like Google (or anyone) can, but that would obviously take a LOT and it should continue to grow as China's Internet-using population will.

Buying on the cheap ...

Not only has the bear market helped to maul this stock's price, but unlike Google (who has a "do no evil" mantra) it has recently been accused of being evil. ("Awesome!")

For one, Baidu had been hit by music piracy lawsuits as well as allegations that it helped suppress news during this summer's tainted milk powder scandal that I talked about, in depth, in last week's Tycoon report on Chinese stocks.

Recently, Baidu's paid-search listings included unlicensed pharmaceutical companies in its top bidders for medical keywords. Just like Google, it has sponsored search results (ads) on right side, and in the main part of the page it has natural listings. Even in the natural results, unauthorized merchants are even outranking legitimate pharmaceutical companies. This caused the stock price to get cut in half from about $210 to about $110.

So why am I recommending the stock? Because this will pass and life will go on. There will be bumps along the way, of course, but if you are a long-term holder of the stock, you can make several thousand percentage points on this stock over the years as more of China's population starts using the Internet -- PERIOD.

That's it folks. I hope you've been listening to me on what I've been saying for the last few weeks. Of course, these stocks can get cut in half. But if you buy them and hold them through the ups and downs (not watching them would make that easier), you won't care what happens between the time you buy them and the time you sell them.

The stocks I've been recommending are fortune builders.

Chris Rowe is the Chief Investment Officer for Tycoon Publishing's The Trend Rider. To learn more about him, click here to read his bio.