"Nearly half of China's 640 major cities face water shortages, with 100 facing severe shortages. Some 278 cities in China don't have any wastewater treatment facilities whatsoever and dump raw sewage directly into their local waterways.

"The amount of sewage and industrial effluents discharged into Chinese rivers and lakes is rising each year, with over 200 million tons released last year.

"Sadly, so much of China's water is so badly polluted that hundreds of thousands of Chinese are afflicted each year with water-borne diseases -- the result of unsafe drinking water.

"Unfortunately, the situation is going to get even worse. There is only one solution to China's severe water pollution problem: Money. Tons and tons of money.

"Somebody is going to get very, very rich by helping China solve its pollution problem. So what's the best way to grab a piece of that very juicy pie?

"Duoyuan Global Water makes water treatment equipment, such as filtration, water softening, water sediment separation, disinfection, and reverse osmosis.

"And get this: Duoyuan sells its products throughout all 28 Chinese provinces - to a range of business, residential, and utility customers.

"Founded in 1992, Duoyuan has been profitable every year since its inception. In 2008, revenues and profits surged by 42% and 63%, respectively, from the previous year. That's on the heels of the 40% and 39% revenue and profit growth reported in 2007.

"Just as impressive is management's ability to keep a tight lid on expenses. Cost of sales decreased from 60.2% to 54.9% over the last 12 months.

"We consider the stock a compelling value. Duoyuan made $19.5 million of net profits in 2008, and with 21 million post-IPO shares, that works out to 92 cents earnings per share. The stock is currently in the low $20s, so it has a P/E of approximately 25 times earnings.

"If you're tempted to consider a stock with a P/E of 25 expensive ... don't. Fast-growing companies with a dependable business model always sell at premium P/Es.

"And Duoyuan is perfectly positioned to cash in for years from the Chinese government's completely funded commitment to clean water. I believe this stock has the potential to be a big winner."

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