"Although I am not a big fan of either technology stocks or Chinese stocks, bear markets do create opportunities -- such as Sohu.com. (NASDAQ: SOHU), says Jack Adamo.
In his Jack Adamo's Insiders Plus newsletter, the advisor reviews Sohu.com, the second-largest internet search engine company in China.
"In recent quarters, it has made 42% of its revenues from search and display advertising; the rest comes from online gaming and wireless services. Earnings in the September quarter grew by more than fourfold year-over-year.
"With the Olympics over and the economy slowing to an expected GDP rate of 7%, earnings growth at Sohu is expected to slow as well. The last few quarters bear that out. But even in the slowing environment, earnings were up 14% compared to the June quarter.
"For a Chinese stock, this may be considered to be a relatively slow grower, but the price is right. Selling at less than 10-times earnings, you'd be hard pressed to find a better buy among well-established Chinese companies.
"And Sohu is more than well established. It has a rock-solid balance sheet from which it earns much more interest on its cash balance than it pays out on its miniscule amount of debt.
"It also publishes earnings quarterly in accordance with U.S. GAAP, making it easier to follow. Most foreign companies use the more accommodating foreign issuer regulations that allow them to report earnings only twice a year.
"In addition, Sohu uses the U.S. Dollar as its reporting currency, making things like currency translations less of an issue. In short, it is a strong company with good market presence that's doing everything right to make its stock act well.
"Whenever you can get a stock whose P/E ratio is lower than its expected growth rate (it's called a price/earnings-to-growth ratio) you're probably getting a bargain.
"When it's a stock with a strong position in its industry, in one of the fastest growing economies in the world, you've almost certainly got a winner. I think the risk-to-reward profile here is outstanding."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
12-17-2008 @ 11:15AM
Neolight said...
.....this is the sort of play that you can't go wrong on in the intermediate/long term: the internet in China will transform society the way it did in the West; of course this is already happening. Why in the world would it slow down?
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