I've always felt that the next great future growth story is overseas. Countries like China, Brazil and India have billions of citizens that are just now starting to move up in the world and will want better housing, food and social lifestyles. While there are a lot of U.S.-based companies that have substantial operations overseas, it's good to keep an eye out for companies that are actually based overseas. Warren Buffett did so several years ago and saw tremendous value in Korean stocks when many were trading for low single-digit price to earnings (P/E) ratios.
IN PICTURES: 20 Tools For Building Up Your Portfolio

Don't Ignore China
As globalization continues to define our economies, many businesses that were once thought of as speculative and operating in closed market economies are now passing the test. The most obvious area is China, as the country is still under communist rule but continues to adopt free market principles with respect to its businesses.

Bet on Chinese Education
An interesting small cap is China Education Alliance (OTC:CEUA), a leading educational service company that offers online educational services like test preps, study guides and certificate training. During the most recent quarter revenues grew by 100% and net income grew by over 65%. Shares are trading at $3.25 and value the company at $75 million, up significantly from its lows in January, with a P/E that is still 7.

The company has no debt and about $1 in cash per share. With a quality balance sheet and a very low-cost business model, China Education Alliance is a quality bet on the future educational growth in China. It's not the screaming bargain it was a few months ago, but it's not expensive either.

ChinaEdu Corporation (Nasdaq:CEDU) is another online provider of education in China, but its gross margins and growth rates are fractions of CEUA. Even Chinacast Education Corporation (Nasdaq:CAST), a $216 million company, is going for 25 times earnings, and "only" boasts operating margins of 36% against CEUA's 41% margins.

China Has to Feed Itself
With a population of 1.3 billion, China has to figure out a way to feed itself as no other country can realistically feed itself plus another 20% of the population. So agriculture in China is looked upon favorably by the government, as food security is right up there with national security.

Investors should pay special attention to China Green Agriculture (NYSE:CGA), a $130 million, debt-free, Chinese fertilizer manufacturer. Net margins are 35% and return on equity is over 50%. In addition, AgFeed Industries (Nasdaq: FEED) sells animal feed, primarily hog feed and recently began buying up hog farms to breed and sell for meat production. China consumes six times as much pork as the next biggest consumer, the U.S. China will only grow and eat more pork and AgFeed is a certain beneficiary. With a market cap of $216 million, no net debt, and being in the business of feeding people, FEED may be a wonderful growth story at only 10 times earnings today. The company earned 56 cents a share last year, up over 200%. If the company delivers $1 in EPS in 2011, assuming no meaningful share dilution, shares will trade at $10, nearly double from today's price.

Bottom Line
These nimble Chinese businesses sport tech-boom-like growth rates, but with utility-like valuations. Such continued growth performance coupled with today's prices make value the catalyst for the long-term investors. As many of these share prices have jumped multifold from the lows earlier this year, the easy gains are likely off the table, but that doesn't mean that patience won't be rewarded in the future. (For additional reading, see Investing In China.)

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center