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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | NOVEMBER 16, 2004
Playing the China Card [Page 2 of 2] Q: If you were to invest in China, what would you go for? What companies are in the forefront? A: If I wanted a Chinese company, I would start with PetroChina. PetroChina as an oil company would not be overvalued were oil trading in the mid-20s. In other words, with oil in the mid-40s, by any fundamental metric, the stock is dramaticaly undervalued. It has a dividend yield of over 5%, and in case I fail to mention it, its two top shareholders are the Chinese government and Warren Buffett. To the best of my knowlege, Buffett in his entire career has never had a major position in a commodity play such as PetroChina. This is a first for him. My guess is he's not only betting on high energy prices but also, as I said before, a nearly sure long-term uptrend in the Chinese currency. But as I also said before, major international franchises, from Intel to Coke, will also benefit handsomely from strong growth in India and China. Q: You advise investors to be selective now. Beyond energy and tech, where should we be looking? A: In the wake of recent election results, I think health care is a very promising area. We like a collection of health-care stocks, ranging from Novartis (NVS ) to Allergan (AGN ) to Zimmer (ZMH ) to Teva (TEVA ). Health care is a sure beneficiary of demographics. And in virtually every major economy in the world, including China, populations are aging. With a government that is fairly friendly to health care now fairly sure in the U.S., I do think health-care stocks are good medicine for your portfolio. But, as always, be selective and do your research. As the recent debacle in Merck (MRK ) proves, even great health-care companies can suffer big falls. Q: What would you do if you hold Merck? A: Someone asked me that today in my office, and I said that if you back me against the wall and force me to give an answer, I would probably say hold it. But I do think there are still substantial risks. Generally speaking, whenever you have to get legal opinions as to potential liabilities, and whenever those potential liabilities could be significant, you should probably look to other investments. I think Novartis, for example, is a Big Pharma with a much clearer, maturer, much safer outlook than that of Merck. Q: How about the financials? You referred to AIG. Do you think the President changing Social Security will be good for Citigroup (C )? A: I really haven't thought about how Social Security changes will affect Citigroup, but I do think Citigroup is a deeply undervalued stock -- but much more because of its huge international exposure than any benefit that might accrue to it by changing positions on Social Security. As to financial stocks in general, I think selected ones, even ones without international exposure such as Wells Fargo (WFC ), and especially Berkshire Hathaway (BRK ), are excellent investments and have long-term growth potential of 12% or more. Q: Would you comment on the water industry and your favorites? A: The water industry is one that is often overlooked, and it is indeed a critical industry. This is a very good question, and thanks for asking it. The one water-related equity that we are recommending is Aqua America (WTR ). This water-based utility offers decent yield, along with the promise of double-digit long-term growth. Q: Do you recommend any other stocks that provide income, like REITs? A: We recommend a variety of income plays. Three that I would single out, because not only are they income plays, and growing income plays at that, but each has a stake in alternative energy, and I think alternative energies are going to be one of the great growth industries over the next 10 years. I won't keep you guessing. My three favorites in this regard are FPL Group (FPL ), which is the leading wind producer...in addition to being a 4%-yielding Florida-based utility, and Exelon (EXE ) and Entergy (ETR ), which are the two leading nuclear utilities in the country. Q: So, what about Microsoft (MSFT ), with all its cash and now a dividend? A: I think if you want income, Microsoft is not the place to look. Even with its recent dividend, you are only getting a 1% yield. Indeed, Intel, which in my opinion has a stronger long-term growth profile than Microsoft, offers greater income. That said, I think Microsoft is an exceptionally safe company and one that should be at least modestly rewarding over the long haul.
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