Invest Domestically And Benefit From China

Despite the relatively impressive growth in GDP during this global recession, there's no question that value-oriented investors should be proceeding with caution in investing in China. A Bull on China
For what's it worth, I am a long-term bull on China, despite the government having expanded credit by a blistering pace in the first half of 2009 and the country's volume of exports having declined significantly. On top of that, there are legitimate questions concerning the accuracy of Chinese economic numbers.

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Nonetheless, should the country experience another hiccup, I am very confident that there will be a much bigger economic system in several years. I'm comforted by the fact that the Chinese people are strong net savers, and as their standard of living improves, so will Chinese domestic consumption. If China can improve domestic consumption, the pain of reduced exports will not be as acute. (For more, see Investing In China.)

Made in China, Bought in the USA
I am still more comfortable when the financial reporting is done by U.S.-based companies. As long as the State has control over manners of accounting, it's wise to view Chinese numbers with a healthy dose of skepticism. Today, quality business in North America offers investors both the benefit of U.S. financial and accounting standards and exposure to the massive opportunities afforded in China. (For related reading, check out The Top 6 Factors That Drive Investment In China.)

Canadian commodity giant Teck Resources (NYSE:TCK) recently sold a small minority interest in itself to China. The deal was beneficial to both parties as China added yet another partner to help it secure its bulging appetite for commodities, and Teck got some much needed capital and a loyal customer.

Infrastructure Play
On the infrastructure side, a neat contrarian play is Terex (NYSE:TEX), one of the largest providers of construction equipment in the world. Terex makes things like cranes, aerial work platforms and excavating equipment. Terex's products are used all over the world, including in China and India. The company has a market cap of $1.8 billion with annual sales of nearly $9 billion. Management has been straight with shareholders in telling them that 2009 will be a terrible year.

Two years ago, however, the stock was over $70 and earned over $5 a share, and over the past 10 years the average EPS was over $2. Buying this business at 25% sales could be a very lucrative investment if one is patient. Once margins improve to, say, 4%, Terex will be earning anywhere from $350 to $450 million in profit, an absurdly cheap valuation at three to four times today's market value. Compare that to other U.S.-based multinationals Deere (NYSE:DE) and Caterpillar (NYSE:CAT), which trade at a price-to-sales ratio of 0.76 and 0.68, respectively.

The Bottom Line
Today, many U.S.-based businesses have great exposure to the China story. And with names like Terex looking incredibly cheap relative to similar valuations in China, some of the best plays on China are found in the U.S.

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