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I am constantly hunting for profitable opportunities and I realized months ago that India would be the one major emerging market that would notably accelerate in the second half of the year and into 2011.
I was able to find another good opportunity to recommend here. That opportunity is Tata Motors Ltd. (TTM).

About a month ago, my colleague Jason Simpkins articulated a view of the Indian economy that clearly details how that country is looking to accelerate growth. The major headwind for India has been inflation - more specifically, food prices. However, India is experiencing a normal monsoon season and will soon see its production of food increase and food prices drop - the recent spike in wheat prices notwithstanding. This drop in food prices, coupled with renewed fiscal discipline, will help bring inflation down from around 10% to about 6% by year end.

This is very important, since declining inflation and strong economic performance will allow for capital inflows and currency appreciation. Moody's Corp. just recognized this strong progress by raising India's local currency rating to Ba1 from Ba2.

Now, there are only a few ways in which foreign investors can actually participate in India's equity markets - again, Jason explains several of those options in his article. The reality is that there are just a handful of American Depositary Receipts (ADRs) for Indian companies that have any liquidity or are worthy investments.

However, one of those ADRs - Tata Motors - currently is offering investors a rare opportunity. The leading automaker in India reported results in stellar fashion, and it's set to keep cruising.

Tata Motors over the last five years has grown revenue at a rate of 25% a year on average. And this year's second quarter was particularly strong, as the company consolidated revenue grew 64%. With this huge increase, Tata Motors turned the corner to solid profitability, posting second-quarter profit of $433 million, compared with a $69 million loss in the same period a year ago.

Tata's operational and financial leverage have been the key to its strong execution. Fixed costs and time to market are very high in this industry, so economies of scale are very high. But if you hit it right with an attractive product mix that is priced adequately, the results are fantastic.

What is truly remarkable is that Tata Motors has managed to turn around the Jaguar Land Rover operation it bought from Ford (F) in June of 2008. The same Jaguar Land Rover operation that was never once profitable in the fifteen years it was under Ford's management, now has produced three straight profitable quarters for Tata.

Tata has dramatically reduced the brands' costs by combining two U.K. plants without cutting jobs. The company also plans to relocate production of the Land Rover Freelander to India.

Furthermore, Tata plans to boost sales by introducing its new Land Rover Defender globally and could soon introduce a station wagon and a new roadster under the Jaguar brand.

These new models should be well received in India - a country with the second-largest population in the world and an ambitious highway infrastructure plan that's set to be completed by 2015.

Enter Tata's Nano - the cheapest car in the world. Tata started production on the Nano in July 2009, after receiving 206,703 orders in just three months. Demand has been so strong that the company just opened a plant in Gujarat, which is the first plant to be specifically dedicated to the Nano. The plant will have a capacity of 250,000 cars a year to start and 350,000 cars a year if necessary. The Nano sells for some $2,500 in India and will be sold for some $7,000 in the United States later on.

In addition to the Nano, Tata has a strong hold on India's commercial vehicle market. The company maintains a whopping 61% of the local commercial market. And it saw a 39% jump in volume in that segment in the second quarter.

Indeed, Tata Motors has turned the corner and has huge earnings growth momentum. And that momentum will only grow stronger as India's growth accelerates in the second half of 2010 and beyond.

Yet in spite of all of this, Tata Motors stock is still cheap.

In terms of valuation, it is trading at a ridiculously low forward price/earnings (P/E) of 8 and an even more ridiculous price/earnings/growth (PEG) ratio 0.34-times.

The stock is in a "boring" bullish trend, trading above its 20, 50, and 200 day exponential moving averages and it's at the top of its Bollinger bands. It has rallied more than 80% in a year.

This looks like a breakout right now, and clearly is a gift to investors interested in India. The only question is when and how to get in. I don't like to chase stocks, but the potential is huge in this one. So we are going to go in phases.

Recommendation: Buy an initial position in Tata Motors, averaging in over the next couple of weeks, and save enough firepower to double up after any major pullback.

Disclosure: Horacio Marquez holds no interest in Tata Motors Ltd.

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Source: Tata Motors Kicks Into High Gear