A Different Way to Profit in China
09/30/2013 8:00 am EST
China expert Jim Oberweiss shares how he finds not-so-run-of-the-mill opportunties in China that most investors don't uncover.
SPEAKER 1: I’m talking China with Jim Oberweiss today. Hi Jim, and thanks so much for being here.
JIM: Thanks very much. It’s a pleasure.
SPEAKER 1: You know, you’ve been a bull in China for a while. Last time we talked, which maybe was Vegas or Orlando, I forgot, you were bullish then and you’ve done very well there.
JIM: I think we’re the only ones actually. Actually that’s the best time to be bullish is when most people are pessimistic. Look, we think that broadly growth rates in China are slowing but everybody knows that. There are very few investors who aren’t aware of that. It’s justified in valuations already. In other words it’s completely discounted. The off side would be if a trend doesn’t slow down quite as much as people think, and that’s where you likely see stock price moves; but more importantly, you don’t have buy all of China. You can look at specific sectors that are clearly still growing quite rapidly. For example, the technology sector. China is probably about five years behind us in terms of technology adoption. Companies like Amazon and EBay and online gaming companies that have been around that are now mature in the U. S. are still the very high growth stages. We also now have kind of a template to know what works and what doesn’t work and we love to see companies that are just kind of copying business models that have worked elsewhere.
SPEAKER 1: So, is China sort of moving away from the whole manufacturing thing, right, from what it was 15 years ago.
JIM: You know, that was the only start in China seven years ago. We never were really focused on that because there was always going to be somewhere cheaper. The problem with the cheap manufacturing thesis is that eventually the country becomes richer and labor rates go up and the thing that made you successful makes you fail. I think you’ve seen some of that in China, but by the way you also saw that same thing in the U. S., right?
SPEAKER 1: Yes.
JIM: We went through a period in which labor rates went up and then we became more of a consumer driven economy. I think it’s doing the same thing in China, so we much rather own local brands, healthcare, technology, environmental protection; areas that are more focused on domestic economy and not driven by exports and the low-cost manufacturing.
SPEAKER 1: What’s your favorite Chinese stock right now, if you can chose a favorite. It’s hard.
JIM: One is very hard. I’ll tell you one that I really liked is a company called Nettie’s. Nettie’s is a fairly large company. You probably know it. It’s about an $8 billion market cap right now, $2.5 billion in cash, throwing off close to $800,000,000 a year in cash and about 25% of that is being paid out in the form of dividends. You can see it’s real, it’s a real business.
SPEAKER 1: Wow. Yes.
JIM: They have a partnership where they operate Worlds of Warcraft, a very popular online game.
SPEAKER 1: Activation.
JIM: Yep, exactly. They do it in China. They’ve added a number of new games that are driving growth, but the best part is it trades for about 11 times earnings. This is kind of a value stock with a tech bent.
SPEAKER 1: What’s your target on it? Do you have a target on it?
JIM: I don’t put a target because we’re always trying to assess new information as it comes to market.
SPEAKER 1: Sure.
JIM: We certainly think that there is room for 50% appreciation from current prices right now…
SPEAKER 1: Huh.
JIM: Given the information we have right now.
SPEAKER 1: I’ll take it. Thanks, Jim. Thanks for being with us on the moneyshow.com video network.