How To Profit From the 2008 China Olympics

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

This week’s Global Bull Market Alert pick is NASDAQ-listed, Shanghai-headquartered, Home Inns & Hotels Management, Inc. (HMIN). Operating exclusively in China’s fast-growth markets, Home Inn has become China’s top budget hotel chain virtually overnight. And with the Olympic games putting China firmly on the global tourism map, Home Inns also offers U.S. investors the best way to profit directly from the massive demand for hotel rooms in China by foreigners.

Incorporated in 2002, Home Inns has a head start in China that gives the company a huge first-mover advantage in a sector with vast potential. Domestic Chinese travel jumped almost 75% from 1995 to 2004, with travel spending growing to $66.1 billion. Home Inns already operates 134 hotels across China, opening 27 hotels in the fourth quarter of 2006 alone. An additional 48 hotels are already under contract. With operations in 39 cities, and having its pick of prime, under served markets with strong population and economic growth, Home Inns is particularly well-positioned to take advantage of China’s potential moving ahead.

As always, with China, the numbers cannot but fail to impress. The occupancy rates of Home Inns are among the highest in the world, ranging between 94% and 98% — compared with 67%-69% for hotel operators in the United States. In the third quarter, Home Inns posted earnings of 9 cents per American depositary share, up 350% from a year earlier. Revenues hit $19.2 million, up 112% from a year ago. The company expects revenues between $20.5 million to $22.5 million in the fourth quarter.

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Of course, the question in everyone’s mind is, how big can Home Inns get? Investment bank Deutsche Bank thinks Home Inns can easily triple its hotel portfolio over the next 24 months. With China’s growing business travel and tourism able to support about 1,500 chain budget hotels, the upside is still huge. Indeed, with only one serious domestic competitor, Home Inns may be able to continue its current triple-digit percentage growth rates well into the next decade.

With this kind of potential, Home Inns is not a cheap stock. But remember, the company is expected to grow at triple-digit percentage rates for the next two or three years. And the stock combines the tremendous momentum of a short-term trading play, with a serious long-term investment opportunity in a particularly dynamic sector in China.

So buy Home Inns (HMIN) at market today. Remember, this is a small-cap stock in a volatile market. So we’re going to give it a lot of room by placing our stop at $35.75. There are no options on this one.

PORTFOLIO UPDATE

Millicom International (MICC) jumped to over $72 on the news that China Mobile had purchased its Pakistani operations. Last summer, China Mobile tried to buy all of Millicom but the deal fell apart. But the sale of its Pakistani unit to its former suitor confirms that Millicom management is focused firmly on monetizing its portfolio of valuable telecom assets. After dropping slightly during the second half of last week, the stock is now up 74.52% since our initial recommendation. Move your stop to $62.00.

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P.S. Don’t forget that I’ll be speaking at the The Money Show this February in Orlando, Fla. If you cannot attend, you still can see me live via webcast. My presentation, The Top 10 Home Run Stocks at Home and Abroad, will take place Friday, Feb. 9, between 8:55 a.m. and 9:40 a.m. I will be joined by my friend Dr. Mark Skousen, an acclaimed economist and stock picker. Please click here to access the webcast.

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