If I told you that General Electric has grown four times faster than its competition for decades, and will continue to do so for years to come, yet it stock trades well below its competition, wouldn't you sell your car to buy as much GE stock as you could? The simple answer is yes, of course. What if I told you that an opportunity of this magnitude exists right now, but few of us seem to notice? Who is the company? Well, let's call it China, Inc.
The Chinese stock market is not as advanced as what we have in the United States. Most Chinese companies have to list on the U.S. exchanges if they want to be publicly traded and raise capital. While there are many high-profile Chinese IPOs, there are also over 800 lesser-known Chinese companies that are public in the U.S., with the lion's share of them trading at valuations substantially below their U.S. competitors.
While I believe that the American business community has to zealously protect our assets to foreign entities, including the Chinese, I also believe that there are significant opportunities for American investors in the China marketplace. While many sectors of American business are losing ground with the Chinese, there is no reason why American investors hunting for bargains should not look at Chinese businesses carefully. The World Bank and the International Monetary Fund forecast China's growth from 7.2 to 7.5% this year. China's $586 billion stimulus program is helping counter the sagging global economy and puts a spotlight on Chinese business.
The largest economic expansion that this world will see this century is taking place right now, and most U.S. investors are not taking advantage of it. Is it because we don't like China, fear the Chinese taking our jobs or simply don't like the competition? Is it our arrogance that says Chinese companies cannot be as good as ours? When you look at the performance of GM, AIG and others, why would we want to exclusively invest in American companies?
Recently, Pimm Fox, host of Bloomberg TV's Taking Stock, asked me for some recommendations on undervalued Chinese companies -- none of which my firm or I personally own. I highlighted Lotus Pharmaceuticals, (OTC BB: LTUS.OB), a Beijing-based company that is publicly traded in the U.S., with historical revenue growth of about 50% a year, and trades at a P/E multiple of two times 2009 earnings; China North East Petroleum, (NYSE Amex: NEP) an oil producer in Northern China that makes money at only $15 per barrel and trades at a P/E of less than six; and Shanda Interactive Entertainment (NasdaqGS: SNDA), a diversified entertainment company that is tapping into China's burgeoning online gaming marketplace.
I met with a multi-billion dollar hedge fund last November. The head trader relayed that they were only buying Chinese companies and only those with a P/E at one or less. He advised that there were no shortage of good companies to buy.
I believe that Chinese companies, trading on U.S. exchanges, represent the best opportunity to make money in the stock market in a generation. Many Americans complain that China is restricting America's ability to make money. I believe we should wake up and realize that China has given us a golden opportunity to make money off of their efforts. The Chinese work day and night to ensure their future is better and brighter for generations to come. I believe Americans can ensure a brighter financial future as well if we start investing in well-run Chinese companies traded on the U.S. exchanges.