Stock indexes worldwide have suffered in recent months and data out of the largest economy continues to disappoint, making broad stock market investments unattractive in the current environment. The global economy faces great fundamental challenges, however certain segments are flourishing and investors can position themselves to take advantage. China's emergence as an economic superpower continually becomes more apparent and has long been touted by legendary market forecasters Jim Rogers and Marc Faber.
If there's one Chinese stock everyone should own, it's China Mobile (NYSE:CHL). Here's why:
- Leadership: Would you pass up an opportunity to buy Microsoft (NASDAQ:MSFT) 25 years ago? How about McDonalds (NYSE:MCD) or Bank of America (NYSE:BAC) in the 1950s? In today's digital age, wireless communication is quickly becoming fully integrated among the worlds great population. Infrastructure in China is improving faster than anywhere else. Annual revenue for China Mobile is greater than the next two largest competitors, China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU), combined.
- Valuation: China Mobile closed June 17 trading at $44.55, valuing the company below 10 times trailing earnings. The stock has traded as high as $54.50 in the last year. Many telecom stocks worldwide trade at similar discounts, however the aforementioned Chinese competitors trade at P/Es of 19 and 100. With little debt and strongth growth prospects, China Mobile appears to be the bargain of the sector.
- Growth: Both revenues and profits have grown in each of the last four fiscal years for China Mobile, which cannot be said for either domestic competitor. Profit growth was greater from FY2009 to FY2010 than FY2008 to FY2009 and China's vast population will allow numbers to continue improving for years to come.
- Yield: Jim Cramer has been recommending that investors focus on yield in today's shaky market. Long-term investors should always prioritize yield as a form of guaranteed returns. Yield also shows diligent stock management, shareholder loyalty and strong free cash flow. CHL did pay a semi-annual dividend in May, however at the current price yields over 4% annually.
- The Yuan: Since the currency's peg to the U.S. Dollar has been loosened, China's Yuan (NYSEARCA:CYB) has progressively appreciated against the world reserve currency. With asset markets weak of late, the Yuan has been the lone outperformer of King Dollar as a safe haven. China is a creditor nation among highly indebted world leaders. Exposure to the Yuan is a must for conservative investors.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CHL over the next 72 hours.