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Chinese Rocket Stocks Part III

With Baidu (BIDU) hitting new all-time highs Monday and Tuesday, I felt it totally appropriate to add another installment of Chinese Rocket Stocks.

Asian stocks are continuing their tear as global growth is now back in the forefront of investors' minds. Unfortunately, though, many investors remain hesitant about putting money into Chinese stocks.

Market bubbles, China's government and corruption issues keep many folks worried. Even so, these companies, which are spinning off a ton of cash and sporting excellent balance sheets and great growth prospects, also have a solid of wall of worry built in.

In recent times, China has been much stricter in regard to internal corruption, and it remains under pressure to open its markets to freer trade.

That's why, in an effort to continue our earlier work, I set up a new list on Stockpickr: the Chinese Rocket Stocks Part III portfolio. (Check below for links to the earlier Chinese Rocket Stocks portfolios.)

In this edition, I re-examine a few small-cap Internet plays as well as a few plays on gambling and solar energy.

First up is NetEase (NTES), an online gaming company that provides content and services in several languages through its online games. Since there are 12 official dialects and countless other tongues spoken in mainland China, NetEase's business model makes sense.

With $400 million in net cash, a $2.2 billion market cap and $200 million in cash flow, NetEase is trading at only 9 times cash flow. One interesting statistic is that NetEase has beaten analyst expectations in each of the past four quarters. If it beats again in 2008 (and all indications are it will, as the gaming sector has beaten up), then NetEase will have a forward price-to-earnings ratio (P/E) of 13 or lower, trailing even the lowest companies in that space.

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