Limitless Possibilities in China

Limitless Possibilities
By Roger Friedman (TMF Roger)

I've taken a bit of grief at Fool HQ for my lack of a specific investing focus. Around these parts, the value guys and growth guys are mortal enemies, rivals of the highest order, always mere moments away from a dance-off. For some of the more strident members of each faction, my free-form investing style is as fathomable as being a fan of both the Yankees and the Red Sox, having both Jethro Tull and Gloria Estefan in the CD player, or drinking Miller Lite because it tastes great and it's less filling. I say, as Soren Kierkegaard once did, you label me, you negate me. Or maybe it was Wayne Campbell in Wayne's World. Regardless, I think there are real benefits to staying open to all of the market's possibilities. Like David and Tom Gardner in their Motley Fool Stock Advisor newsletter, I'm not stuck in a style. I go after the most compelling opportunity, period.

Compelled by China

What's compelling today? China. This country of 1.3 billion people boasts 20-year gross domestic product (GDP) growth of 9.5% and shows no sign of slowing. To compare, the United States -- the most powerful economy in the world -- has posted long-term GDP growth of approximately 3%. Read that again. China is growing more than three times faster than the United States. Moreover, it seems like almost every major U.S. company is tripping over itself to establish market share there. Wal-Mart (NYSE: WMT) China recently celebrated its ninth anniversary, and the company now operates 48 stores in the country. Of the 15 breweries Anheuser-Busch (NYSE: BUD) operates internationally, 14 are in China! The company also owns significant stakes in two major Chinese brewers: Harbin and Tsingtao. Then there's IBM (NYSE: IBM), which sold its PC unit to Chinese giant Lenovo for $1.25 billion and then took an 18.9% stake in the company.

But is there a better way to get in on China's growth without investing in multibillion-dollar, multinational behemoths that have little to no chance of rising 10 to 20 times in value over the next 20 years? Sure. Find small Chinese companies that are poised to become the next multibillion-dollar, multinational behemoths. These companies aren't exactly easy to find, but they're out there. And that's exactly the kind of business that Fool co-founder David Gardner loves to find. In fact, I think he's done it with his pick in the December 2005 issue of Stock Advisor. David's pick is an important Internet portal and aggregator of information that it is often referred to as the Yahoo! of China. We give subscribers first crack at the newsletter recommendations, so I can't reveal the name here, but if you click here to take a free trial to the newsletter, you can get a look at David's research and analysis.

Compelled by value

Or maybe China concerns you -- the currency risk, the slightly less-than-free society, the unpredictable government regulation. I'll admit: I'm not entirely confident in China, either. That's fine. Like me, you don't have to commit to one style of investing. That's why many of David's growth picks are balanced by Tom's value picks in Stock Advisor. These are businesses you can understand, with strong growth prospects, selling at reasonable-to-cheap valuations. Take Corporate Executive Board (Nasdaq: EXBD), for example -- a stock that's up more than 220% since Tom recommended it in the August 2002 issue. Although its $1.2 billion market cap made it a small cap at the time, Tom rightly identified it as a steady grower priced reasonably at 28 times free cash flow. Corporate Executive Board profits from a membership-based subscription business model in which large organizations pay the company to advise them on everything from human resources to marketing. Customers are generally steady businesses and include more than 70% of the Fortune 500 -- companies like Wal-Mart, Anheuser-Busch, IBM, Microsoft (Nasdaq: MSFT), and PepsiCo (NYSE: PEP). That means revenue is reliable and predictable.