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Top China Stocks: Under the Radar

4. Shanda Interactive (SNDA) operates online games.

Numbers: Fourth-quarter profit increased 8% to $54 million, or 78 cents a share, as revenue soared 49% to $222 million. Shanda's operating margin contracted from 44% to 37%. Its balance sheet contains $1.9 billion of cash and $153 million of debt.

Stock: Shanda Interactive increased 22% over the past 12 months, less than U.S. indices. The stock sells for a price-to-projected-earnings ratio of 11, a 50% discount to the industry average. The shares are also cheap based on book value and sales.

Catalyst: Internet penetration is rising in China as it tapers in the U.S. Online gaming is a national phenomenon, with roughly 70 million participating. The industry is expected to double in the next few years. Shanda holds a top-three market share.

Consensus: Of 21 analysts covering Shanda, 10 recommend purchasing the shares, nine suggest holding and two advise selling. The stock has returned 19%, annually, over the past three years. It ranks in the top 6% of our coverage universe.

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