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Five Top Chinese Pharma Plays

Editor's note: This is the fifth article in a series on investing in China. The previous columns were Four Ways to Play China, China Investing: Like a Kid in a Toy Store, How (Not) to Invest in China and Catching China's Uplisting Wave.

My grandfather is a berry-picking legend where I come from. The rate at which he picked seems to accelerate as the story propagates, but I would like to show how you can apply successful wild berry-picking principles to stock picking.

Right now, the picking is good in Chinese pharmaceuticals. If you know what you're doing I believe you can turn thousands into millions over the next couple years. And that's after taxes.

1. You need to know where to look.

If you go looking for berries in the desert, you might be disappointed. If you're looking for pharmaceuticals, you might run across Lotus Pharmaceuticals (LTUS.OB). Like Jack's magical beanstalk berry, Lotus is my red pill from the "Matrix" and it's only up 78% since I mentioned it in May.

Although Lotus hasn't taken real steps to uplist and the stock price has had a negative correlation with company performance, it is my belief that not picking up this stock is shortsighted to the highest degree. In June it was again awarded Good Supply Practices certification. If you are shortsighted you'll never make ends meet berry picking and you'll never find a company like Lotus that is growing and trading at less than twice earnings.

2. You need to know when to look.

Although China has been running headlines and a lot of people are bubbling with excitement it was only last year when China was the poison berry. When you buy determines the price you pay and, therefore, the risk you undertake as I believe risk comes only from overpaying.

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