A China Stock Worth a Look Web portal Sina is the information gatekeeper for a nation of 1.3 billion.
By Carla A. Fried

(Business 2.0) – Can you take a hot tip and leave your assumptions behind? It's a media company that dominates a market growing 40 percent each year, whose revenue has jumped 128 percent in the past 12 months, and whose shares tripled in less than a year to $47 before settling at $34 in late May. Yes, it's an Internet company--called Sina (SINA)--which is the biggest Web portal in China. Walter Price, longtime manager of the Pimco RCM Global Technology Fund, considers the stock, which trades on Nasdaq, the most promising pick in his $479 million portfolio. In his view, Sina is a way to hitch a ride on the Chinese consumer juggernaut without taking on many of the economic risks that dog plenty of the nation's other stocks.

The beauty of Sina is that it's an information gatekeeper in a country hungry for information. Sina.com provides news on politics, sports, and entertainment to 95 million registered users. That's already a third as many users as regularly visit Yahoo, and yet Sina has barely scratched the surface of a market with a population of 1.3 billion.

Sina also has a strong foothold in the Chinese cellular market, providing cell-screen-size text and images to 9.9 million subscribers to China Mobile, China Unicom, and other carriers. Again, the volume is mind-boggling: Estimates are that the number of cell-phone users--already 307 million, larger than the entire U.S. population--will grow 50 percent by 2007.

Of course, fast growth is not hard to come by among Chinese stocks. What distinguishes Sina from its compatriots is that its future doesn't depend on exports. When the Chinese government ultimately allows the value of the artificially low yuan to rise, it will mean more costly export goods, putting pressure on China-based companies that ship out their wares.

In addition, Sina turns a profit. That distances it from the flood of Chinese government-subsidized businesses that have yet to make a penny. "Over the next three to five years, most Chinese companies will learn the painful lesson that it's not enough to grow revenue," Price says. "You have to be profitable and show that your profits can grow. Sina has already gone through that process." Indeed, Price expects Sina's profits to rise more than 40 percent during the next 12 months--a very healthy rate for a company trading at just 21 times next year's earnings. "This is a cheap stock," says Price, who believes that the price could double. And he is worth listening to on such matters: His fund has generated an 18.1 percent annualized gain over his nine-year tenure, three times the return of the average tech fund.

Still, you have to be realistic about the risks. Sina is first and foremost a Web portal, and anyone who invested in ExciteAtHome in the 1990s knows that the field has a high mortality rate. Price agrees but notes that Sina has its cell-phone business--and less competition than U.S. portals had for on-demand news. True, U.S. portals never risked being shut down for posting content offensive to government censors. But Price thinks Sina knows how to avoid that problem. "They understand what they can't do," he says.

Like any fast-growing company, Sina will be pummeled in the market at the first hint of slowing prospects. In April the stock slid 20 percent on news that the company may spend more to obtain fresh content. Investors were spooked by the prospect of a shrinkage in Sina's juicy 70 percent gross margins. Since then the stock has climbed impressively, as Price believed it would. But again, don't make any assumptions: A great China bet is a bet nonetheless. -- CARLA A. FRIED