International Bets For 2010

Now more than ever, investors should be very aware of the value that international equity exposure can add to the long-term growth of an investment portfolio. The numbers are too compelling to ignore. Collectively, the BRIC nations - Brazil, Russia, India and China - comprise over half of the world's population. Yet, this is a population that is now beginning to urbanize and enjoy a middle class standard of life. Consider that China now has over 300 million people using the internet - that's more than the entire population of the U.S.. but less than a third of China's total population.

International Bets For 2010

Posted: Jan 12, 2010 08:50 AM by Sham Gad

Tickers in this Article: IRSA, FEED, TSN, YUHE, CRESY

Now more than ever, investors should be very aware of the value that international equity exposure can add to the long-term growth of an investment portfolio. The numbers are too compelling to ignore. Collectively, the BRIC nations - Brazil, Russia, India and China - comprise over half of the world's population. Yet, this is a population that is now beginning to urbanize and enjoy a middle class standard of life. Consider that China now has over 300 million people using the internet - that's more than the entire population of the U.S.. but less than a third of China's total population.

A Latin American Gem
Cresud (Nasdaq: CRESY) is one of the largest private owners of farmland in Argentina. The company has also been acquiring other massive parcels of farmlands in countries like Brazil, Bolivia and Paraguay. The company focuses on using that farmland for the production of milk, beef, grains, and other agricultural products. CRESY has relationships with companies like Tyson Foods (NYSE:TSN), which expands the company's reach. Heading into 2010, Cresud's shares traded for $14 an ADR, approximately the value of stated book. However, book value is vastly undervaluing the true value of the rich arable farmland that Cresud owns and operates. In addition, Cresud owns over 50% of IRSA (NYSE:IRS), a real estate company in Argentina. Add up all the parts and you have a business selling for significantly less than true value. (For more, check out Digging Into Book Value.)

Still Feeding the Chinese
China had one of the best performing markets in 2009, in no doubt due to the government induced credit expansion along with a newfound optimism concerning the country's economic growth. While few will dispute the amazing long-term growth potential in China, 2010 could be a see-saw year for Chinese equities since may have appreciated multi-fold in 2009. Still, the fact remains that only China has the potential to feed China. Yuhe International (Nasdaq:YUII) is a fast growing producer of day old chickens in China. (For more, see Investing In China.)

Betting on Yuhe
In China's highly fragmented poultry market, Yuhe is the second largest such company with a 3% market share. China's chicken consumption is only one-third of that in developed countries, and that consumption is growing faster by the year. While pork still remains the most consumed protein in China, China's development leads its people to want different types of food, and this is leading to a growth in demand in beef and poultry at the expense of pork. At the December price of $7.80 a share, YUII traded at a P/E of less than eight and is expected to grow both top and bottom line by over 25% for the next several years. Compare this with AgFeed (Nasdaq:FEED), a producer of pork in China, which trades for 15 times earnings, and there is significant upside in Yuhe shares. (For more, see Top 6 Factors That Drive Investment In China.)

Buyer Beware
There tends to be greater risk when investing in companies operating abroad, especially in developing countries. The upside of course is participating in a country where most of the economic growth is still to come. China, especially after the year its had in 2009, should be handled carefully, but patient investors who buy at sensible prices should fare quite well. (For related reading, check out Forging Frontier Markets.)

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By Sham Gad

Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga

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