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Plays on China Infrastructure

The greatest advantage investing has over baseball is that you get to choose the pitches you swing at. In baseball, you only get a few pitches in order to get a hit. In investing, I have sifted through thousands of companies in order to choose only the obvious picks. If I don't like a company, I don't have to buy it! Imagine only having to swing at the perfect pitch. You could hit a lot of home runs!

When I traveled in China last year I was amazed with the growth in infrastructure. There was construction everywhere -- cranes building new skylines, brand new large toll roads being built to support the more than 100% growth in automobile sales, and rapid construction in general in order to achieve modernity. Compare that with extremely undervalued companies and you have a great industry for a value investor. That's why I am traveling to China this summer; to find those special companies that will turn into home runs.

China is the largest developing nation in the world with a growth rate of more than 8% for the last 30 years. Steel production from 2000 to 2010 increased from about 100 million tons to 500 million tons. In response to the economic crisis, the Chinese government pledged a $586 billion package to help the economy. As a result, massive investments by both the national and local governments were made in infrastructure. Projects include expansions to the nation's international airports, road and rail networks, energy production capacity, and buildings and other large public works projects. Here are two infrastructure companies I think will get knocked out of the park.

China Armco (CNAM) specializes in importing and distributing metal ore. It recently has completed its scrap metal recycling facility and has already received a $100 million contract. The company expects the factory to be at full capacity by the fourth quarter, which should generate $400 million in revenue with 8% to 12%, giving it net income of about $40 million and a forward price-to-earnings ratio of 2.5. While it was a nonsensical $35 million company a little over a month ago, at the current market cap of $97 million it will still be trading at a price-to-sales ratio of 0.25.
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